-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RVKHBgsWJe2UntANBUEiwb2OCzfKPFNyYrvT6MM49U/0ATlU+6/UOROmxn3OTWdL EKUNFrlNWwRMTMDjvDt2OA== 0000950152-98-002795.txt : 19980401 0000950152-98-002795.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950152-98-002795 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVELOPERS DIVERSIFIED REALTY CORP CENTRAL INDEX KEY: 0000894315 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 341723097 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11690 FILM NUMBER: 98580555 BUSINESS ADDRESS: STREET 1: 34555 CHAGRIN BLVD CITY: MORELAND HILLS STATE: OH ZIP: 44022 BUSINESS PHONE: 2162474700 MAIL ADDRESS: STREET 1: 34555 CHAGRIN BLVD CITY: MORELAND HILLS STATE: OH ZIP: 44022 10-K 1 DEVELOPERS DIVERSIFIED REALTY CORPORATION 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------- FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from____________to__________ Commission file number 1-11690 ------------------ DEVELOPERS DIVERSIFIED REALTY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-1723097 ----------------------------------- ------------------------ (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 34555 Chagrin Boulevard Moreland Hills, Ohio 44022 ----------------------------------------------------------- (Address of principal executive offices - zip code) (440) 247-4700 ----------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered --------------------------------------------------------------------------- Common Shares, Without Par Value New York Stock Exchange -------------------------------- ----------------------- Depositary Shares Representing Class A Cumulative Redeemable Preferred Shares New York Stock Exchange ------------------------------------------------------------------------- Depositary Shares Representing Class B Cumulative Redeemable Preferred Shares New York Stock Exchange ------------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: None ------------------------------------------------------------------------- (Title of class) 2 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------------- -------------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant at March 16, 1998 was $991,953,728. APPLICABLE ONLY TO CORPORATE REGISTRANTS Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 27,819,716 common shares outstanding as of March 16, 1998 DOCUMENTS INCORPORATED BY REFERENCE. The registrant incorporates by reference in Part III hereof portions of its definitive Proxy Statement for its 1998 Annual Meeting of Shareholders. -2- 3 TABLE OF CONTENTS
Item No. Report Page - ------------- -------------- PART I 1. Business ....................................................... 4 2. Properties...................................................... 10 3. Legal Proceedings............................................... 19 4. Submission of Matters to a Vote of Security Holders............. 19 PART II 5. Market for the Registrant's Common Equity and Related Shareholder Matters ................................. 22 6. Selected Financial Data......................................... 23 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 25 8. Financial Statements and Supplementary Data..................... 33 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................ 33 PART III 10. Directors and Executive Officers of the Registrant.............. 34 11. Executive Compensation.......................................... 34 12. Security Ownership of Certain Beneficial Owners and Management ............................................... 34 13. Certain Relationships and Related Transactions.................. 34 PART IV 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K........................................... 35
-3- 4 PART I Item 1. BUSINESS General Development of Business Developers Diversified Realty Corporation (the "Company"), a self-administered and self-managed real estate investment trust (a "REIT"), is in the business of acquiring, developing, redeveloping, owning, leasing and managing shopping centers and business centers. Unless otherwise provided, references herein to the Company include Developers Diversified Realty Corporation, its wholly owned and majority owned subsidiaries and its joint ventures. From January 1, 1995 to March 16, 1998, the Company has acquired 35 shopping center properties, including those owned through joint ventures, two of which were acquired in 1998, eight of which were acquired in 1997, five of which were acquired in 1996, 20 of which were acquired in 1995. The Company's executive offices are located at 34555 Chagrin Boulevard, Moreland Hills, Ohio 44022, and its telephone number is (440) 247-4700. Financial Information about Industry Segments The Company is in the business of managing, operating, leasing, acquiring, developing and investing in shopping centers and business centers. See the consolidated financial statements and notes thereto included in Item 8 of this Annual Report on Form 10-K for certain information required by Item 1. Narrative Description of Business Since 1965, the Company and Developers Diversified Group ("DDG"), its predecessor, have owned and managed approximately 239 shopping centers. The Company's portfolio as of March 16, 1998 consisted of 125 shopping centers (including 15 properties which are owned through joint ventures, 14 of which the Company owns a 50% interest, and one of which the Company owns a 35% interest), five business centers and 70 undeveloped parcels (5 of which are owned through joint ventures) aggregating approximately 175 acres (the "Portfolio Properties"). In addition, the Company owns a 42.5% ownership interest in a shopping center located in Princeton, New Jersey and a 75% interest in a joint venture which acquired 33 retail sites, formerly occupied by Best Products. From January 1, 1995 to March 16, 1998, the Company has acquired 35 shopping centers containing an aggregate of 10.4 million square feet of GLA owned by the Company for an aggregate purchase price of approximately $1.0 billion. During 1995, 1996 and 1997, the Company completed expansions at 32 of its shopping centers. As of March 16, 1998, the Company was expanding seven shopping centers and expects to commence expansions at additional shopping centers in 1998. The Company has also substantially completed the development of 11 additional shopping centers since December 31, 1994, at an aggregate cost of approximately $231.4 million aggregating approximately 3.9 million square feet. As of March 16, 1998, the Company had five shopping centers under development. The Company's shopping centers were approximately 96.1% leased as of December 31, 1997, and the business centers were 98.6% leased as of that date. At December 31, 1997, the Company had entered into additional leases with anchor tenants aggregating in excess of 158,000 square feet of vacant space, scheduled to commence in 1998, which brings the leased rate at the shopping centers to 96.7%. On December 31, 1997, the average annualized base rent per square foot of Company-owned GLA of the shopping centers was $8.49 and the business centers was $4.04. -4- 5 The Company is self-administered and self-managed and, therefore, does not engage or pay for a REIT advisor. The Company manages all of the Portfolio Properties. At December 31, 1997, the Company owned and/or managed approximately 35.3 million total square feet of GLA, which included all of the Portfolio Properties and 23 properties owned by third parties. Strategy and Philosophy The Company's investment objective is to increase cash flow and the value of its portfolio of properties and to seek continued growth through the selective acquisition, development, redevelopment, renovation and expansion of income-producing real estate properties, primarily shopping centers. In pursuing its investment objective, the Company will continue to seek to acquire and develop high quality, well-located shopping centers and business centers with attractive initial yields and strong prospects for future cash flow growth and capital appreciation where the Company's financial strength and management and leasing capabilities can enhance value. Management believes that opportunities to acquire existing shopping centers have been and will continue to be available to buyers with access to capital markets, such as the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Company's real estate strategy and philosophy is to grow its business through a combination of leasing, expansion, acquisition and development. The Company seeks to: - increase cash flows and property values through strategic leasing, re-tenanting, renovation and expansion of the Company's portfolio; - continue to selectively acquire well-located, quality shopping centers (individually or in portfolio transactions) which have leases at rental rates below market rates or other cash flow growth or capital appreciation potential where the Company's financial strength, relationships with retailers and management capabilities can enhance value; - increase cash flows and property values by continuing to take advantage of attractive financing and refinancing opportunities (see "Recent Developments - Financings"); - selectively develop the Company's undeveloped parcels or new sites in areas with attractive demographics; - hold properties for long-term investment and place a strong emphasis on regular maintenance, periodic renovation and capital improvements; and - continue to manage and develop the properties of others to generate fee income, subject to restrictions imposed by federal income tax laws, and create opportunities for acquisitions. As part of its ongoing business the Company may periodically engage in discussions with public and private real estate entities regarding possible portfolio or asset acquisitions or business combinations. -5- 6 In addition, the Company intends to maintain a conservative debt capitalization with a ratio of debt to total market capitalization (the sum of the aggregate market value of the Company's common shares, the liquidation value of preferred shares and the Company's total indebtedness) of less than .50 to 1.0. At December 31, 1997, the Company's debt to total market capitalization ratio, excluding the Company's proportionate share of indebtedness of its unconsolidated joint ventures, was approximately 0.36 to 1.0; and at March 16, 1998 this ratio was approximately 0.36 to 1.0 At December 31, 1997, the Company's capitalization consisted of $668.5 million of debt (excluding the Company's proportionate share of joint venture mortgage debt aggregating $190.3 million), $149.8 million of preferred stock and $1,059.0 million of market equity. At December 31, 1997, the Company's total debt consisted of $526.0 million of fixed-rate debt and $142.5 million of variable rate debt. Fluctuations in the market price of the Company's common shares may cause this ratio to vary from time to time. The strategy, philosophy, investment and financing policies of the Company, and its policies with respect to certain other activities, including its growth, debt capitalization, distributions, status as a REIT and operating policies, are determined by the Board of Directors. Although it has no present intention to do so, the Board of Directors may amend or revise these policies from time to time without a vote of the shareholders of the Company. Recent Developments Financings In January 1997, the Company completed a 3,350,000 common share offering and received net proceeds of approximately $115.8 million. In June 1997, the Company completed a 1,300,000 common share offering and received net proceeds of approximately $49.4 million. In September 1997, the Company completed a 507,960 common share offering through a registered unit investment trust and received net proceeds of approximately $18.8 million. In December 1997, the Company completed a 316,800 common share offering through a registered unit investment trust and received net proceeds of approximately $11.3 million. The proceeds from the four common share offerings mentioned above were primarily used to retire variable rate debt. The common share offerings significantly strengthened the Company's balance sheet and positioned the Company to continue to take advantage of attractive acquisition, development and expansion opportunities. In March 1997, the Company issued, through a grantor trust, $75 million of Pass-Through Asset Trust Securities (PATS), due March 2002, at a discount to 99.53%. These certificates are secured by fifteen year notes ("Notes") maturing March 2012, issued by the Company to the trust. The trust sold an option which enables the option holder to remarket the Notes upon maturity of the certificates in March 2002. Simultaneously with the sale of the certificates, the trust purchased the Notes from the Company for a premium in the amount of the option payment. In March 1997, the Company extended its $150 million unsecured revolving credit facility, agented by the First National Bank of Chicago and Bank of America NT&SA, for an additional year, through May 2000, and reduced the interest rate 15 basis points. The amendment also introduced a competitive bid feature for up to $75 million of borrowings. In April 1997, the Company extended its $10 million unsecured revolving credit facility with National City Bank through November 2000, and reduced the interest rate 15 basis points. -6- 7 In March 1997, the Company sold two business centers in Highland Heights, Ohio aggregating approximately 113,000 square feet for approximately $5.7 million and recognized a gain of approximately $3.5 million. The net proceeds of approximately $5.4 million were used to repay revolving credit debt. In November 1995, the Company commenced a medium-term note program (the "Medium Term Note Program"). The Medium Term Note Program enables the Company (i) to issue on an ongoing basis discrete amounts of unsecured debt that will closely match, both as to timing and amount, the Company's specific liquidity requirements, including property acquisition, development and redevelopment costs, and (ii) to better manage the Company's debt maturities, including its mortgage debt maturities. As of March 16, 1998, the Company had issued Medium Term Notes in the aggregate amount of $317.7 million ($100 million in 1998, $102 million in 1997, and $115.7 million in 1996 and 1995). The net proceeds from each issuance were used to repay line of credit borrowings and mortgage debt. The Medium Term Note Program remains available for the Company to issue additional Medium Term Notes when the Company considers market conditions advantageous. Equity Investments in Joint Venture In January 1997, the Company formed a joint venture with certain institutional investors, which are advised by DRA Advisors, Inc., to acquire a 0.3 million square foot shopping center located in San Antonio, Texas. The aggregate cost of the shopping center was approximately $38.3 million of which the Company's proportionate ownership share was 35%. The Company contributed approximately $3.5 million of equity and manages the shopping center pursuant to a management agreement. Property Acquisitions, Developments and Expansions During 1997, the Company acquired seven shopping centers aggregating 2.4 million square feet of Company-owned GLA (Gross Leasable Area) for an aggregate investment of approximately $267.9 million. In addition, in January 1997, the Company entered into a joint venture with certain institutional investors which are advised by DRA Advisors, Inc. to acquire a 0.3 million square foot shopping center located in San Antonio, Texas. The aggregate cost of the shopping center was approximately $38.3 million of which the Company's proportionate ownership share is 35%. The Company also contributed approximately $0.5 million of additional assets to the OSTRS Joint Venture during 1997. During 1997, the Company and its joint ventures completed expansions and redevelopments at 13 of its shopping centers aggregating approximately 0.8 million square feet at an aggregate cost of approximately $39.0 million. The Company is currently expanding seven shopping centers and will continue to pursue additional expansion opportunities. The Company and its joint ventures currently have approximately 175 acres of undeveloped land consisting of 70 parcels, primarily adjacent to its existing shopping centers, available for development, expansion or sale. During 1997, the Company substantially completed the construction of four shopping centers which include: (i) a 235,000 square foot Phase II development of the Canton, Ohio shopping center; (ii) a 500,000 square foot shopping center in Boardman, Ohio; (iii) a 475,000 square foot shopping center in Stow, Ohio and (iv) an 84,000 square foot community center in Aurora, Ohio. Development activity was also completed at two of the Company's joint venture shopping centers located in Atlanta, Georgia and Framingham, Massachusetts which were acquired in connection with the Community Center Joint Ventures in November 1995. -7- 8 During 1997, the Company commenced construction on two additional shopping centers which include a 200,000 square foot Phase II development of the Erie, Pennsylvania center, and a 445,000 square foot shopping center in Merriam, Kansas which is being developed through a joint venture formed in October 1996, 50% of which is owned by the Company. These shopping centers are scheduled for completion during the last half of 1998. The Company has also commenced the initial development of three additional shopping centers which include: (i) a 240,000 square foot shopping center in Toledo, Ohio; (ii) a 170,000 square foot shopping center in Solon, Ohio and (iii) a 230,000 square foot shopping center in Oviedo, Florida (a suburb of Orlando). All three centers are scheduled for completion during the fourth quarter of 1998. The Company is also involved with, or pursuing, joint venture development opportunities on eight additional projects with various developers throughout the country at a projected cost aggregating approximately $300 million. The majority of projects should commence development in 1998 and are currently scheduled for completion in 1999. In December 1997, the Company and Hendon Associates formed a joint venture to acquire 33 retail sites, formerly occupied by Best Products, from Metropolitan Life. Under the terms of the joint venture with Hendon Associates, the Company advanced the capital to fund the purchase price of the assets and it is expected that the Company will receive (i) a priority return of its capital; (ii) a 15% compound annual return thereon and (iii) 75% of additional available cash flow. The 33 retail sites, are located in 13 states with concentrations in Ohio, California and New Jersey. These sites were acquired at an initial cost of approximately $54.5 million. It is expected that a majority of the 33 sites will be redeveloped and retenanted with a few sites being sold. At the date of acquisition, it was anticipated that the Company's ownership interest would be transferred to the "Retail Value Fund" ("Fund") with Prudential Real Estate Investors upon finalization of the joint venture documents which occurred on February 11, 1998. The Company contributed its ownership interest in the joint venture formed with Hendon Associates to the Fund, and in exchange for a 75% ownership interest in this joint venture, was reimbursed approximately $41.5 million from Prudential Real Estate Investors. The proceeds of $41.5 million were used to repay variable rate borrowings on the Company's revolving credit facilities. The Fund will invest in retail properties within the United States that are in need of substantial retenanting and market repositioning. This Fund may also make equity or debt investments in companies owning or managing retail properties as well as in third party development projects that provide significant growth opportunities. The retail property investments may include enclosed malls, neighborhood centers or other potential commercial redevelopment opportunities. The Company is expected to maintain an ownership interest of approximately 25% in the Fund. The Company will also own a majority of the stock of the general partner of the Fund. The general partner will own a 1% interest in the Fund and will receive an incentive participation equal to 33% of cash flow, after the limited partners receive a return of invested capital plus a cumulative return of 10% thereon. The Fund will have its own employees and the Company will assume retail management and operating responsibilities including leasing, redevelopment and accounting and will be paid fees in consideration of the foregoing services. -8- 9 In late December 1997, the Company acquired a 42.5% ownership interest in a 584,000 square foot shopping center located in Princeton, New Jersey at an initial cost of approximately $7.7 million. During the first half of 1998, the Company anticipates acquiring the balance of the ownership interest in the property through the issuance of approximately 11,850 Operating Partnership Units, which will be convertible to the Company's common shares, and the assumption of debt. Upon completion of the transaction, the Company's aggregate investment will be approximately $36.4 million, including assumption of debt of approximately $27.7 million. The Company also acquired a 45.1% ownership interest in an adjacent development site at an initial cost of approximately $9.9 million. Upon completion of construction, the Company anticipates acquiring the balance of the ownership interest in exchange for cash and Operating Partnership Units. Retail Environment During 1997, certain national and regional retailers experienced financial difficulties and several have filed for protection under bankruptcy laws. No significant bankruptcies have occurred during the period January 1 through March 16, 1998 with regard to the Company's portfolio of tenants. See Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 and the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report on Form 10-K for further information on certain of the recent developments described above. Competition As one of the nation's largest owners and developers of neighborhood and community shopping centers, the Company has established close relationships with a large number of major national and regional retailers. Management is associated with and/or actively participates in many shopping center and REIT industry organizations. Notwithstanding these relationships, there are numerous developers and real estate companies that compete with the Company in seeking properties for acquisition and tenants who will lease space in these properties. -9- 10 Employees As of March 16, 1998, the Company employed 198 full-time individuals, including executive, administrative and field personnel. The Company considers its relations with its personnel to be good. Qualification as a Real Estate Investment Trust The Company presently meets the qualification requirements of a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). As a result, the Company generally will not be subject to federal income tax to the extent it meets certain requirements of the Code. Item 2. PROPERTIES At December 31, 1997 the Portfolio Properties included 123 shopping centers (13 of which are owned through joint ventures in which the Company and a party otherwise unaffiliated with the Company owns a 50% interest and one of which the Company owns a 35% interest), consisting of 106 community shopping centers and power centers, 12 enclosed mini-malls, and five neighborhood shopping centers. The Portfolio Properties also include five business centers containing office and light industrial, warehouse and research space and 70 undeveloped parcels (aggregating approximately 175 acres) primarily located adjacent to certain of the shopping centers. The shopping centers and business centers aggregate approximately 25.2 million square feet of Company-owned GLA (approximately 33.1 million square feet of total GLA) and are located in 30 states, principally in the East and Midwest, with significant concentrations in Ohio, Florida, South Carolina, North Carolina, Michigan and Minnesota. Neighborhood and community shopping centers and power centers make up the largest portion of the Company's portfolio, comprising 21.8 million (86.6%) square feet of Company-owned GLA. Enclosed mini-malls account for 2.9 million (11.6%) square feet of Company-owned GLA, and business center space consists of approximately 0.5 million (0.9%) square feet of Company-owned GLA. On December 31, 1997, the average annualized base rent per square foot of Company-owned GLA of the shopping centers, including those owned through joint ventures, was $8.49 and of the business centers was $4.04. The Company's shopping centers are designed to attract local area customers and are typically anchored by one or more discount department stores and often include a supermarket, drug store, junior department store and/or other major "category-killer" discount retailer as additional anchors. Substantially all of the shopping centers are anchored by a Wal-Mart, Kmart or Target, and the power centers are anchored by two or more national or regional tenants. The tenants of the shopping centers typically offer day-to-day necessities rather than high-priced luxury items. As one of the nation's largest owners and operators of shopping centers, the Company has established close relationships with a large number of major national and regional retailers, many of which occupy space in the shopping centers. -10- 11 The following table sets forth, as of December 31, 1997, information as to anchor and/or national retail tenants which individually accounted for at least 1.0% of total annualized base rent of the properties, including those owned though joint ventures:
% of Shopping Center % of Company-owned Base Rental Revenues Shopping Center GLA -------------------- ------------------- Wal-Mart 7.2% 11.4% Kmart 5.2 9.7 T. J. Maxx/Marshall's 2.8 2.6 Homeplace 2.6 1.9 Kohl's Dept. Store 2.4 2.6 Barnes & Noble/B. Dalton 2.2 1.1 Lowes Home Centers 2.1 2.8 Office Max 1.9 1.5 Best Buy 1.6 1.0 Fashion Bug 1.3 1.3 Kroger 1.2 1.3 JC Penny 1.2 2.5 Publix Supermarkets 1.1 1.3 General Cinema 1.1 0.3 AMC Theaters 1.0 0.6
In addition, as of December 31, 1997 unless otherwise indicated, with respect to the 123 shopping centers: - 49 of these properties were developed by DDG and seven were developed by the Company; - 90 of these properties are anchored by Wal-Mart, Kmart or Target store; - these properties range in size from just under 100,000 square feet to approximately 900,000 square feet of GLA (with 32 properties exceeding 325,000 square feet of GLA); - approximately 58.1% of the Company-owned GLA of these properties is leased to national chains, including subsidiaries, with approximately 32.2% of the Company-owned GLA leased to regional chains and approximately 6.4% of the Company-owned GLA leased to local tenants; - approximately 96.1% of the aggregate Company-owned GLA of these properties was leased as of December 31, 1997. The Company has entered into additional leases with anchor tenants aggregating in excess of 158,000 square feet of vacant space, scheduled to commence in 1998, which brings the December 31, 1997 leased rate to 96.7% (and, with respect to the properties owned by the Company at December 31, for each of the five years beginning with 1993, between 94.8% and 97.1% of aggregate Company-owned GLA of these properties was leased); - Seven of the properties are currently being expanded by the Company, and the Company is pursuing the expansion of additional properties. -11- 12 TENANT LEASE EXPITATIONS AND RENEWALS The following table show tenant lease expirations for the next ten years at the Comany's shopping centers and business centers, including joint ventures, assuming that none of the tenants exercise any of their renewal options:
Percentage of Percentage of Total Leased Total Base Annualized Average Base Sq. Footage Rental Revenues No. of Approximate Base Rent Rent Per Sq. Foot Represented Represented Expiration Leases Lease Area in Under Expiring Under Expiring by Expiring By Expiring Year Expiring Square Feet Leases Leases Leases Leases - ---------- -------- ------------- -------------- ---------------- ------------- --------------- 1998...... 257 926,994 $ 7,133,437 $ 7.40 3.8% 3.5% 1999...... 289 989,966 $ 9,230,495 $ 9.32 4.1% 4.5% 2000...... 242 817,474 $ 8,368,004 $ 10.24 3.4% 4.1% 2001...... 220 874,478 $ 8,863,940 $ 10.14 3.6% 4.3% 2002...... 192 1,344,136 $ 9,492,605 $ 7.06 5.6% 4.6% 2003...... 77 906,135 $ 5,189,351 $ 5.73 3.7% 2.5% 2004...... 57 635,993 $ 5,207,037 $ 8.19 2.6% 2.5% 2005...... 65 964,253 $ 6,917,645 $ 7.17 4.0% 3.4% 2006...... 46 564,647 $ 6,621,302 $ 11.73 2.3% 3.2% 2007...... 49 596,702 $ 6,596,269 $ 11.05 2.5% 3.2% ----- --------- ----------- --------- ---- ---- 1,494 8,620,778 $73,620,085 $ 8.54 35.6% 36.0%
The five business centers are located in Ohio and range in size from approximately 36,000 to 236,000 square feet of Company-owned GLA. The business centers contain office and light industrial, warehouse and research space. As of December 31, 1997, the business centers were 98.6% leased. All of the five business centers are triple net leased, four are leased to single tenants, and one is leased to multiple users. Pursuant to the triple net leases, the tenants are obligated to pay all maintenance and insurance expenses and real estate taxes, and all or substantially all operating expenses, relating to the applicable business centers. The leases for the business centers have terms which are scheduled to expire between October 1998 and November 2003. These leases generally have fixed or cost-of-living rental increases in their option, but not in their base terms. Accordingly, the rental payments under these leases will remain constant until the expiration of their base terms, regardless of inflationary increases. There can be no assurance that any of these leases will be renewed or that any new tenants for the Company's business centers can be obtained if not renewed. The Company's 70 undeveloped parcels primarily consist of outlots, retail pads and expansion pads which are primarily located adjacent to certain of the shopping centers. The Company is pursuing an active marketing program to lease or develop its undeveloped parcels. -12- 13 DEVELOPERS DIVERSIFIED REALTY CORPORATION PROPERTY LIST DECEMBER 31, 1997 - -------------------------------
Interest (ground Company lease Gross termination/ Land Leaseable Type of option Date Developed Area Area Center/Property Location Property (1) termination) or Acquired (2) (Acres) (sq.ft.) - --------------------- ---------------------- ------------ ----------- ----------------- ------ -------- Alabama - ------- Birmingham (Brk), AL 5291 Highway 280 South PC Fee 12/01/94, 12/29/94(a) 64.46 479,859 Birmingham (East), AL 7001 Crestwood Blvd. PC Fee 03/01/89, 11/15/95(a) 45.49 284,475 Huntsville, AL 6140-A University Drive PC Fee 12/28/95, 12/28/95(a) 5.29 41,000 Arizona - ------- Ahwatukee, AZ 4711 East Ray Road PC 07/10/96, 02/21/97(a) 59.28 491,689 Phoenix, AZ 7553 West Bell Road PC Fee 10/01/95, 07/02/96(a) 24.12 346,680 Arkansas - -------- Fayetteville, AR PC Fee 04/01/97, 11/20/97(a) 139,277 North Little Rock, AR 4124 East McCain Blvd PC Fee 07/01/91, 03/21/94(a) 27.76 294,357 Russellville, AR 3093 East Main Street PC Fee 02/01/92, 04/18/94(a) 31.20 272,245 California - ---------- San Diego, CA 11610 Carmel Mntn. Rd. PC Fee(6) 04/01/93, 11/17/95(a) 50.00 439,939 Colorado - -------- Alamosa, CO 145 Craft Avenue PC Fee 01/01/86 13.10 19,875 Denver, CO 505 South Broadway PC Fee(6) 11/01/93, 11/17/95(a) 38.59 369,386 Denver, CO 9555 E. County Line Road PC Fee 09/01/97, 10/01/97(a) 46.07 336,944 Trinidad, CO Hwy 239 @ I25 Frontage PC Fee 05/01/86 17.88 63,836 Connecticut - ---------- Waterbury, CT 899 Wolcott Street PC GL1 11/01/73 15.60 124,310 Florida - ------- Bayonet Point, FL U.S. 19 & S.R. 52 PC Fee 09/01/85 58.67 203,760 Brandon, FL 1602 Brandon Blvd PC GL2 06/01/72 17.33 139,522 Cape Coral, FL 1420 Del Prado Blvd NC Fee 09/01/85 9.61 73,240 Crystal River, FL 420 Sun Coast Hwy PC Fee 10/01/86 21.18 146,954 Fern Park, FL 6735 U.S. #17-92 PC Fee 10/01/70 3.04 16,000 Jacksonville, FL 3000 Dunn Avenue PC Fee 12/01/88, 03/31/95(a) 30.82 219,073 Marianna, FL 2820 Highway 71 PC Fee 08/01/90 17.34 63,894 Melbourne, FL 750-850 Apollo Blvd PC GL3 11/01/78 15.52 121,913 Naples, FL 5010 Airport Road North PC Fee(6) 03/01/94, 11/17/95(a) 30.60 266,438 Ocala, FL 3711 Silver Sprgs, NE PC Fee 06/01/74 2.23 19,280
Mortgage Obligation Average as of Total Base December 31, Annualized Rent per Percent Center/Property 1997 Base Rent(3) sq.ft.(4) Leased(6) Anchor Tenants (Lease Expiration/Option Expiration) -------------------- ----------- ------------ --------- -------- --------------------------------------------------- Alabama ------- Birmingham (Brk), AL $3,788,250 $7.96 99.2% Wal-Mart (2004/2024), Winn-Dixie (2014/2044), Goody's (2004/2019), Stein Mart (2011/2021), OfficeMax (2011/2026) Birmingham (East), AL 1,949,251 8.75 78.3% Home Depot (not owned) Western Supermarkets (not owned), Office Depot (1999/2014), Goody's (2004/2019), Stein Mart (2003/2018), Cobb Theaters (2006/2016) Huntsville, AL 459,850 11.22 100.0% Wal-Mart (not owned) Arizona ------- Ahwatukee, AZ 6,351,820 13.07 98.9% HomePlace (2012/2027), Smith's (2021/2046), Stein Mart (2011/2026) Phoenix, AZ 3,637,795 10.49 100.0% Lil' Things (2009/2024), Barnes & Noble(2011/2026) TJMaxx (2005/2020), Circuit City (2016/2036), Oshman's (2017/2037), Linens 'N Things(2011/2026), Fry's (not owned) Arkansas -------- Fayetteville, AR 1,304,437 9.37 100.0% T.J. Maxx (2005/2020) Service Merchandise (2016/2031) North Little Rock, AR 1,755,364 6.55 91.1% Kmart (2016/2066), Wards (2014/2034), TJMaxx (2001/2011), Cinemark (2011/2031) Russellville, AR 1,659,354 6.15 99.1% Wal-Mart (2011/2041), JCPenney (2012/2032), Beall-Ladymon (2007/2022) California ---------- San Diego, CA 6,018,390 13.68 100.0% Mervyn's (not owned), Kmart (2018/2048), Pacific Theaters (2013/2023), Sportmart (2008/2023), Circuit City (2009/2024), Marshall's (2009/2029), Ross Dress for Less (2004/2019), Michael's (2004/2014), Barnes & Noble (2003/2013), Blockbuster Music (1999/2014) Colorado -------- Alamosa, CO 155,158 7.81 100.0% Wal-Mart (not owned) Denver, CO 3,559,127 9.64 100.0% Kmart (2019/2069), Albertson's (2019/2049), Sam's (2018/2058), Office Max (2010/2035), Pep Boys (2014/2035) Denver, CO 4,394,117 13.04 100.0% Border's (2017/2027), Golfsmith (2007/2022), HomePlace (2017/2037), Ross Dress For Less (2008/2028), Toys R Us (2011/2046), Soundtrack (2017/2028), Office Max (2013/2033), Michael's (2007/2027) Trinidad, CO 250,088 4.29 91.3% Wal-Mart (not owned), Super Save (1998) Connecticut Waterbury, CT 416,900 3.35 100.0% Kmart (1998/2048), Grand Union (1999/2024) Florida ------- Bayonet Point, FL 5,327,208 1,071,535 5.67 92.7% Publix (2005/2025), Beall's (2002/2017), TJMaxx (2010/2030)*, Eckerd (2005/2025), Kmart (1997/2047) Brandon, FL 298,308 2.64 81.1% Kmart (1997/2047) Cape Coral, FL 460,256 6.76 93.0% TJMaxx (2007/2017), Office Max (2012/2027) Crystal River, FL 423,851 3.21 89.7% Beall's (2001/2016), Scotty's (2008/2038) Fern Park, FL 80,363 7.18 70.0% Kmart (not owned) Jacksonville, FL 7,904,705 1,357,080 6.42 96.5% Wal-Mart (not owned), J.C.Penney (2002/2022), Winn Dixie (2009/2034), Walgreen's (2029/2029) Marianna, FL 434,515 7.18 94.7% Wal-Mart (not owned), Beall's (2005/2020), Eckerd (2010/2030) Melbourne, FL 366,168 3.14 95.7% Kmart (2003/2048), Beall's (1997/2007) Naples, FL 2,797,044 10.55 99.5% Winn Dixie (2014/2038), TJMaxx (2009/2024), Service Merchandise (2015/2035), Ross Dress For Less (2005/2025), Circuit City (2015/2035), Office Max(2010/2025) Ocala, FL 54,060 4.07 68.9% Kmart (not owned), Eckerd (1998/2018)
13 14 DEVELOPERS DIVERSIFIED REALTY CORPORATION PROPERTY LIST DECEMBER 31, 1997 - -------------------------------
Interest (ground Company lease Gross termination/ Land Leaseable Type of option Date Developed Area Area Center/Property Location Property (1) termination) or Acquired (2) (Acres) (sq.ft.) - --------------------- ---------------------- ------------ ----------- ----------------- ------ -------- Orlando, FL 5250 W.Colonial Dr PC Fee 08/01/89 30.57 177,215 Ormond Beach, FL 1458 West Granada Blvd PC Fee 07/01/93, 05/02/94(a) 32.09 234,045 Palm Harbor, FL 300 East Lake Road PC Fee 05/01/90, 05/12/95(a) 5.80 52,395 Pensacola, FL 8934 Pensacola Blvd PC Fee 12/01/88 21.00 75,736 Spring Hill, FL 13050 Cortez Blvd PC Fee 09/01/88 21.60 196,073 Tampa (NPt), FL 15233 No.Dale Mabry PC Fee 12/01/90 23.70 104,473 Tampa (T'nC), FL 7039 West Waters Ave PC Fee 07/01/90 30.61 134,166 Tarpon Springs, FL 41232 U.S. 19, North PC Fee 11/01/74 23.30 192,964 West Pasco, FL 7201 County Rd 54 PC Fee 09/01/86 24.40 135,421 Georgia - ------- Atlanta, GA 1155 Mt. Vernon Highway PC Fee(6) 11/01/95, 11/17/95(a) 30.67 288,045 Duluth, GA 1630 Pleasant Hill Road PC Fee 04/01/90, 02/24/94(a) 8.70 99,025 Marietta, GA 2609 Bells Ferry Road PC Fee(6) 08/01/95, 11/17/95(a) 48.28 319,908 Stone Mountain, GA 5615 Memorial Drive PC Fee 11/01/73 16.60 143,860 Illinois - -------- Harrisburg, IL 701 North Commercial PC Fee 01/01/91, 02/17/94(a) 24.46 168,424 Mount Vernon, IL 42nd and Broadway MM Fee 08/01/74, 08/13/93(a) 39.25 265,717 Schaumburg, IL 1430 East Golf Road PC Fee 11/01/93, 11/17/95(a) 62.80 501,092 Indiana - ------- Bedford, IN 1320 James Avenue PC Fee 07/01/93, 10/21/93(a) 20.56 223,135 Connersville, IN 2100 Park Road PC Fee 01/01/91, 12/10/93(a) 21.99 141,791 Highland, IN Highway 41 & Main Street PC Fee 11/01/95, 07/02/96(a) 16.08 294,115 Iowa - ---- Ottumwa, IA 1110 Quincy Avenue MM Fee 04/01/90 34.00 161,060 Kentucky - -------- Hazard, KY Kentucky Highway 80 PC Fee 08/01/78 11.74 111,492 Maine - ----- Brunswick, ME 172 Bath Road PC Fee(6) 05/01/65, 07/15/97(a) 28.46 290,784 Massachusetts - ------------ Framingham, MA 1 Worcester Road PC Fee(6) 08/01/94, 11/17/95(a) 177.00 768,046 Michigan - -------- Bad Axe, MI 850 No.Van Dyke Rd PC Fee 01/01/91, 08/12/93(a) 18.58 63,415 Cheboygan, MI 1109 East State PC Fee 01/01/88, 12/14/93(a) 16.75 95,094
Mortgage Obligation Average as of Total Base December 31, Annualized Rent per Percent Center/Property 1997 Base Rent(3) sq.ft.(4) Leased(6) Anchor Tenants (Lease Expiration/Option Expiration) -------------------- ----------- ------------ --------- -------- --------------------------------------------------- Orlando, FL 1,412,407 8.12 98.2% Wal-Mart (not owned), Publix (2009/2019), Walgreens (2029/2029) Ormond Beach, FL 1,776,321 7.74 98.0% Kmart (2018/2064), Publix (2013/2033), Bealls (2004/2024) Palm Harbor, FL 729,966 14.62 95.3% Target (not owned), Albertson's (not owned), Eckerd (2010/2025) Pensacola, FL 336,311 8.08 54.9% Wal-Mart (not owned), City Drug (1998/2003) Spring Hill, FL 6,134,476 1,279,419 6.78 96.2% Wal-Mart (not owned), Publix (2008/2028), Walgreens (2028/2028), Beall's (2006/2046) Tampa (NPt), FL 1,157,564 11.08 100.0% Wal-Mart (not owned), Publix (2010/2030) Tampa (T'nC), FL 1,046,996 8.34 93.6% Wal-Mart (not owned), Beall's (2005/2029), Kash N Karry (2010/2040) Tarpon Springs, FL 787,385 4.92 83.0% Kmart (1999/2049) West Pasco, FL 4,783,894 1,017,079 7.79 96.4% Wal-Mart (not owned), Publix (2006/2026), Bealls (2001/2016), Walgreens (2026/2026) Georgia ------- Atlanta, GA 4,163,570 14.63 98.8% SteinMart (2010/2025), HomePlace (2011/2026), United Artists (2015/2035) Duluth, GA 1,202,177 12.48 97.3% Wal-Mart (not owned), Office Depot (2000/2020), Ethan Allen (2000/2010) Marietta, GA 3,505,751 11.19 97.9% Publix (2015/2035), HomePlace (2011/2026), PetsMart (2011/2021), Barnes & Noble (2011/2026) Stone Mountain, GA 445,278 3.15 98.4% Kmart (1998/2048) Illinois -------- Harrisburg, IL 890,733 5.52 95.9% Wal-Mart (2011/2041), Roundy's Grocery (2011/2031) Mount Vernon, IL 1,221,671 4.88 94.2% Wal-Mart (2008/2028),J.C.Penney (1997/2022), Martin's(1999/2014), Stage (1999/2014) Schaumburg, IL 7,225,919 14.49 99.5% Builder's Square (2019/2049), Service Merchandise (2014/2049), OfficeMax (2010/2020), Sports Authority (2013/2033), Marshall's (2009/2024), Nordstrom Rack (2009/2024), Border's Books (2009/2029), Circuit City (2010/2025), Off 5th Saks Fifth Avenue (2011/2026) Indiana ------- Bedford, IN 1,280,755 5.81 98.7% Kmart (2018/2068), J.C.Penney (2008/2028), Goody's (2003/2018), Buehler's (2010/2025) Connersville, IN 806,151 5.69 100.0% Wal-Mart (2011/2041), Cox Supermarket (2011/2026) Highland, IN 2,688,252 9.76 93.6% Marshall's (2011/2021), Circuit City (2016/2036), Kohl's (2016/2036), OfficeMax (2012/2032), Jewel (not owned), Target (not owned) Iowa ---- Ottumwa, IA 1,110,173 7.13 96.6% Wal-Mart (not owned), J.C. Penney (2005/2035), Herberger (2004/2019) Kentucky -------- Hazard, KY 414,959 3.72 100.0% Kmart (2003/2053)*, A&P (1998/2038) Maine ----- Brunswick, ME 1,933,341 6.67 99.7% Hoyt's Cinemas (2010/2025), TJMaxx (2004/2019), Sears (2002/2027) Massachusets ------------ Framingham, MA 12,008,557 15.86 98.6% General Cinema (2014/2034), TJMaxx (2010/2020), Sears Homelife (2004/2024), Marshall's (2011/2026), Bob's (2011/2026), Linens 'N Things (2011/2026) Sports Authority (2015/2035), Barnes & Noble (2011/2026), Ofice Max (2011/2026), Toys R Us (2020/2070), Kids R Us (2020/2070), Bradlee's (2005/2020) Michigan -------- Bad Axe, MI 524,530 8.27 100.0% Wal-Mart (not owned), Farmer Jack's (2012/2037) Cheboygan, MI 397,950 4.60 91.1% Kmart (2005/2055), Carters Food Center (1999/2024)
14 15 DEVELOPERS DIVERSIFIED REALTY CORPORATION PROPERTY LIST DECEMBER 31, 1997 - -------------------------------
Interest (ground Company lease Gross termination/ Land Leaseable Type of option Date Developed Area Area Center/Property Location Property (1) termination) or Acquired (2) (Acres) (sq.ft.) - --------------------- ---------------------- ------------ ----------- ----------------- ------ -------- Gaylord, MI 1401 West Main Street PC Fee 02/01/91, 08/12/93(a) 19.49 190,482 Houghton, MI Highway M26 MM Fee 12/01/81 21.48 234,338 Howell, MI 3599 East Grand River PC Fee 11/01/91, 09/23/93(a) 26.52 215,137 Mt Pleasant, MI 4208 E.Blue Grass Rd PC Fee 07/01/90, 09/24/93(a) 51.13 248,963 Sault Ste Marie, MI 4516 I-75 Business Spur PC Fee 08/01/93, 09/02/94(a) 40.08 262,267 Walker, MI 3390-B Alpine Ave., N.W. PC Fee 09/01/89, 12/29/95(a) 16.40 133,981 Minnesota - --------- Bemidji, MN 1201 Paul Bunyan Dr MM Fee 11/01/77 31.55 295,611 Brainerd, MN 1200 Hwy 210 West MM Fee 08/01/85 17.19 256,722 Eagan, MN I299 Promenade Place PC Fee 04/01/97, 07/01/97(a) 45.70 243,282 Hutchinson, MN 1060 S.R. 15 MM Fee 12/01/81 36.88 121,001 Maple Grove, MN Weaver Lake Road & I-94 PC Fee 10/01/95, 07/02/96(a) 25.61 250,436 St. Paul, MN 1450 University Avenue PC Fee 10/01/95, 07/11/97(a) 20.27 313,781 Worthington, MN 1635 Oxford Street MM Fee 11/01/77 38.02 185,658 Mississippi - ----------- Starkville, MS 882 Highway 12 West PC Fee 08/01/90, 11/16/94(a) 28.81 234,652 Tupelo, MS 3850 North Gloster PC Fee 08/01/92, 12/15/94(a) 41.91 348,236 Missouri - -------- Fenton, MO Gravois Rd-Hwy 141 NC Fee 07/01/70 11.07 93,548 Independence, MO 900 East 39th Street PC Fee(6) 09/01/95, 11/17/95(a) 46.95 365,062 New Jersey - ---------- Princeton, NJ Route 1 and Quaker Bridge Road PC Fee 06/06/95, 12/30/97(a) 202,104 New Mexico - ---------- Los Alamos, NM 800 Trinity Drive NC Fee 07/01/78 8.72 98,050 North Carolina - -------------- Ahoskie, NC 1400 East Memorial Drive PC Fee 12/01/92, 02/25/94(a) 26.95 187,257 Durham (Oxf), NC 3500 Oxford Road PC Fee 12/01/90 41.70 206,827 Durham (NHp), NC 5428-B New Hope Commons PC Fee(6) 07/01/95, 11/17/95(a) 39.53 408,292 Jacksonville, NC US Hwy 17-Western Ave PC Fee 08/01/89 27.51 79,200 New Bern, NC 3003 Claredon Blvd PC Fee 05/01/89 28.18 238,388 Washington, NC 536 Pamlico Plaza NC Fee 11/01/90 22.17 85,000 Waynesville, NC 201 Paragon Parkway PC Fee 06/01/90, 04/28/93(a) 28.40 181,894 Wilmington, NC S.College-New Centre Dr PC Fee 09/01/89 57.78 442,583
Mortgage Obligation Average as of Total Base December 31, Annualized Rent per Percent Center/Property 1997 Base Rent(3) sq.ft.(4) Leased(6) Anchor Tenants (Lease Expiration/Option Expiration) -------------------- ----------- ------------ --------- -------- --------------------------------------------------- Gaylord, MI 1,095,147 5.82 98.7% Wal-Mart (2010/2040), Buy-Low (2011/2031) Houghton, MI 2,798,376 1,033,054 4.74 93.1% Kmart (2005/2055), J.C. Penney (2000/2020) Howell, MI 7,462,728 1,294,826 6.10 98.7% Wal-Mart (2011/2041), Kroger (2012/2042) Mt Pleasant, MI 1,485,846 5.97 100.0% Wal-Mart (2009/2039), Kroger (2011/2041), Odd Lots (1998/2008) Sault Ste Marie, MI 7,519,794 1,585,229 6.41 94.3% Wal-Mart (2012/2042), J.C. Penney (2008/2033), Glen's Supermarket (2013/2033) Walker, MI 1,325,120 9.89 100.0% Circuit City (not owned), Target (not owned), Toys R Us (not owned), TJMaxx (2005/2020), Office Depot (2005/2019) Minnesota --------- Bemidji, MN 1,156,005 4.26 91.8% Kmart (2002/2052), J.C. Penney (1998/2018), Herberger's (2005/2030) Brainerd, MN 935,000 1,631,482 6.91 92.0% Kmart (2004/2054), Herberger's (2008/2023) Eagan, MN 2,834,289 11.65 100.0% HomePlace (2017/2037), Office Max (2013/2033), TJMaxx (2007/2022), Byerly's (2016/2046) Hutchinson, MN 5,134,849 769,702 7.00 90.8% Kmart (not owned), J.C. Penney (2001/2021) Maple Grove, MN 2,437,102 9.73 100.0% Kohl's (2016/2036), Barnes & Noble (2011/2026), Holiday Sports (2011/2027), HomePlace (2016/2036), Cub Foods (not owned) St. Paul, MN 2,474,380 7.89 100.0% Kmart (2022/2057), Cub Foods (2015/2045), PetsMart (2011/2036),Mervyn's (2016/2046) Worthington, MN 1,057,405 5.86 97.2% Kmart (2001/2051), J.C. Penney (2007/2032), Sterling (2001/2021), Hy-Vee (2011/2031) Mississippi ----------- Starkville, MS 2,417,963 1,217,711 5.36 96.7% Wal-Mart (2015/2045), J.C. Penney (2010/2040), Kroger (2012/2042) Tupelo, MS 1,874,722 5.42 99.3% Wal-Mart (2012/2042), Sam's (2012/2042), Goody's (2002/2017) Missouri -------- Fenton, MO 754,923 8.76 92.1% Independence, MO 3,669,243 10.24 98.1% Kohl's (2016/2036), Bed Bath & Beyond (2012/2027), Marshall's (2012/2027), Rhodes Furniture (2016/2026), Barnes & Noble (2011/2026), American Multi-Cinema (2015/2034) New Jersey ---------- Princeton, NJ 3,618,551 17.90 100.0% Wal-Mart (not owned), Sam's (not owned), Home Depot (not owned), Border's Books and Music (2011/2026), Best Buy (2012/2027), Linens N Things (2011/2026), PetsMart (2011/2026) New Mexico ---------- Los Alamos, NM 412,557 6.28 67.0% Furrs(1997/1997), Furrs Pharmacy (1998/2013), TG&Y(2018/2033) North Carolina -------------- Ahoskie, NC 924,444 5.01 98.5% Wal-Mart (2013/2043), Belk (2008/2033), Food Lion (2012/2032) Durham (Oxf), NC 1,099,547 6.59 80.7% Wal-Mart (not owned), Food Lion (2010/2030), Lowes (2011/2031) Durham (NHp), NC 4,530,910 11.10 100.0% Wal-Mart (2015/2035), Upton's (not owned), Michael's (2005/2020), Marshall's (2011/2026), Linens 'N Things (2011/2026), Best Buy (2011/2026), OfficeMax (2010/2025), Barnes & Noble (2010/2025) Jacksonville, NC 2,664,141 550,995 6.96 100.0% Wal-Mart (not owned), Wilson's (2009/2024) New Bern, NC 5,392,642 1,399,143 6.08 96.6% Wal-Mart (2009/2034) Washington, NC 391,019 4.65 98.8% Wal-Mart (2009/2034) Waynesville, NC 1,101,277 6.05 100.0% Wal-Mart (2011/2041), Food Lion (2011/2031) Wilmington, NC 10,075,323 3,086,032 7.00 99.6% Wal-Mart (2009/2034), Sam's (not owned), Lowes (2009/2029), Hamrick's (2002/2007), Goody's (2005/2015)
15 16 DEVELOPERS DIVERSIFIED REALTY CORPORATION PROPERTY LIST DECEMBER 31, 1997
Interest (ground Company lease Gross termination/ Date Land Leaseable Type of option Developed or Area Area Center/Property Location Property (1) termination) Acquired (2) (Acres) (sq.ft.) - --------------------- ---------------------- ------------ ----------- ----------------- ------ -------- North Dakota - ------------ Dickinson, ND 1681 Third Avenue MM Fee 05/01/78 27.10 267,506 Ohio - ---- Ashland, OH U.S. Route 42 PC Fee 11/01/77 6.26 110,656 Aurora (Barrgtn), OH 70-130 Barrington Town Square Drive NC 04/01/96 37,876 Aurora, OH 180 Lena Drive BC Fee 09/01/88 20.00 236,225 Boardman, OH I-680 & US-224 PC Fee 02/01/97 57.04 385,355 Canton, OH 5496 Dressler Road PC Fee(6) 10/01/95 20.00 229,920 Canton (II), OH Dressler Road PC Fee 10/01/97 180,582 Chillicothe, OH 867 North Bridge Street PC Fee 09/01/74 16.70 236,105 Cincinnati, OH 5100 Glencrossing Way PC Fee 11/01/90 24.47 231,224 05/26/93 (a) Clev.W.65th, OH 3250 West 65th Street PC Fee 10/01/77 4.18 49,420 Eastlake, OH 33752 Vine Street PC Fee 09/01/71 0.99 4,000 Elyria, OH 825 Cleveland PC Fee 09/01/77 16.30 150,200 Highland Hts., OH 6235 Wilson Mills Rd PC Fee 11/01/95 11.63 247,146 Hillsboro, OH 1100 North High St PC Fee 03/01/79 11.02 58,583 Huber Hts., OH 8280 Old Troy Pike PC Fee 06/01/90 17.39 163,741 08/12/93 (a) Lebanon, OH 1879 Deerfield Road PC Fee 01/01/90 (a) 14.40 26,500 08/12/93 (a) Macedonia, OH 8210 Macedonia Commons PC Fee(6) 05/01/94 19.94 234,789 07/05/94 (a) Mentor, OH Pine Needle BC Fee 11/01/87 3.10 40,200 N.Olmsted, OH 5140-25877 Great Northern Blvd. PC 06/01/58 43.14 619,327 02/21/97 (a) Solon, OH 6211 S.O.M. Center Rd PC Fee 05/01/78 0.64 2,560 Stow, OH Kent Road PC Fee 08/01/97 170,222 Stow (Kmart), OH 4332 Kent Road PC Fee 07/01/69 20.14 116,806 Streetsboro, OH 3000 Crane Drive BC Fee 03/01/89 5.00 66,200 Tiffin, OH 870 West Market St MM Fee 09/01/80 27.62 230,278 Toledo, OH 5245 Airport Highway PC Fee 10/01/93 22.87 187,674 02/24/95 (a) Twinsburg (Her), OH 9177 Dutton Drive BC Fee 11/01/89 3.90 35,555 Twinsburg (VSA), OH 9300 Dutton Drive BC Fee 11/01/89 6.80 85,800 Westlake, OH 30100 Detroit Road PC Fee 10/01/74 12.71 162,420 Wilmington, OH 1025 S. South Street PC Fee 11/01/77 7.38 55,130 Xenia, OH 1700 West Park Square PC Fee 11/01/94 7.38 104,873 Zanesville, OH 3431 North Maple Ave PC Fee 04/01/90 3.28 13,283 Oregon - ------ Portland, OR NW Evergreen Pkwy.& NW Ring Road PC Fee 11/01/95 18.29 151,970 08/22/96 (a) Pennsylvania - ------------ Erie, PA 2301 West 38th Street PC GL8 08/01/73 13.27 95,000
Mortgage Obligation Average as of Total Base December 31, Annualized Rent per Percent Center / Property 1997 Base Rent(3) sq.ft.(4) Leased(6) Anchor Tenants (Lease Expiration/Option Expiration) -------------------- ----------- ------------ --------- -------- --------------------------------------------------- North Dakota ------------ Dickinson, ND 1,066,298 4.17 95.6% Kmart (2003/2053), J.C. Penney (1998/2018), Herberger (2000/2020), Thrifty Drug (2001/2001) Ohio ---- Ashland, OH 233,382 2.11 100.0% Kmart (2002/2052), N.J. Supermarkets (1997/2022) Aurora (Barrgtn), OH 555,330 16.21 90.4% Heinens (not owned) Aurora, OH 744,109 3.15 100.0% Hardline Services (2003/2013) Boardman, OH 3,116,352 8.09 100.0% Lowe's (2016/2046), Staples (2012/2032), Dick's Clothing & Sporting Goods (2012/2027), Wal-Mart (2017/2047), PetsMart (2013/2038) Canton, OH 2,519,104 11.10 98.7% Kohl's (2016/2046), Target (not owned), Media Play (2011/2026), Dick's Clothing & Sporting Goods (2010/2025) Canton (II), OH 1,816,097 10.06 100.0% Service Merchandise, Homeplace, Jo-Ann ETC. Chillicothe, OH 1,808,382 7.66 100.0% Lowes, (2015/2035), Kroger (2001/2031), Super X (2001/2031) Cincinnati, OH 2,208,518 9.56 99.9% Thriftway (2009/2029), Service Merchandise (2006/2031) Clev.W.65th, OH 229,630 4.91 94.6% Kmart (not owned), A&P (1997/2027), Revco (1997/2007) Eastlake, OH 68,400 17.10 100.0% Kmart (not owned), Elyria, OH 761,970 5.07 100.0% Hill's (2003/2028), Finast (2010/2045) Highland Hts., OH 2,563,263 10.37 100.0% Builders Square (2020/2070), Kohl's (2007/2047), Dick's Clothing and Sporting Goods (2016/2036) Hillsboro, OH 254,872 4.35 100.0% Kmart (2004/2054) *, Rite Aid (1999/2004), Bob & Carls (not owned) Huber Hts., OH 1,568,028 9.58 100.0% Wal-Mart (not owned), Cub Foods (2011/2031), Sears (2002/2012) Lebanon, OH 227,200 8.57 100.0% Wal-Mart (not owned), PK Lumber (not owned) Macedonia, OH 2,230,843 9.50 100.0% Wal-Mart (not owned), Finast (2018/2049), Kohl's (2016/2041) Mentor, OH 227,130 5.65 100.0% Steris Corp (1999/2004) N.Olmsted, OH 4,770,220 8.85 87.0% Regal Cinemas (2001/2001), Marc's (2002/2007), CompUSA (2008/2023), Finast (not owned) Solon, OH 64,792 25.31 100.0% Kmart (not owned) Stow, OH 1,344,954 7.83 100.9% Target (NO), Giant Eagle, Stein Mart, OfficeMax Stow (Kmart), OH 189,344 1.62 100.0% Kmart (1996/2006) Streetsboro, OH 297,366 4.49 100.0% Alumax Alum (1997/2006) Tiffin, OH 816,272 3.68 96.3% Kmart (2005/2055), J.C. Penney (2000/2010), Heileg-Myers (2004/2014) Toledo, OH 1,438,062 7.66 100.0% Best Buy (2009/2024),Office Depot (2009/2024), Michaels (2004/2014) Sears (2002/2012) Twinsburg (Her), OH 202,230 6.94 81.9% Twinsburg (VSA), OH 377,424 4.40 100.0% VSA (1998) Westlake, OH 937,483 6.04 95.5% Kmart (1999/2049), Marc's (2004/2019) Wilmington, OH 181,854 3.99 82.6% Kmart (not owned), Super Valu (1998/2018) Xenia, OH 790,484 7.54 100.0% Wal-Mart (not owned), Kroger (2019/2049) Zanesville, OH 129,847 9.78 100.0% Kmart (not owned) Oregon ------ Portland, OR 2,255,273 14.84 100.0% Office Depot (2010/2025), Haggan Supermarket (2021/2046), Mervyn's (not owned), Target (not owned) Pennsylvania ------------ Erie, PA 209,655 2.37 93.3% Hill's (1998/2023)
16 17 DEVELOPERS DIVERSIFIED REALTY CORPORATION PROPERTY LIST DECEMBER 31, 1997
Interest (ground Company lease Gross termination/ Land Leaseable Type of option Date Developed Area Area Center/Property Location Property (1) termination) or Acquired (2) (Acres) (sq.ft.) - --------------------- ---------------------- ------------ ----------- ----------------- ------ -------- Erie, PA 1902 Keystone Drive PC Fee 07/31/95 65.69 483,305 East Norriton, PA 2700 DeKalb Pike PC Fee 11/01/75 24.22 174,109 South Carolina - -------------- Anderson, SC 406 Highway 28 By-Pass PC Fee 06/01/90, 03/08/94(a) 20.90 163,809 Anderson, SC 3812 Liberty Highway PC Fee 10/01/93, 03/22/95(a) 2.13 14,250 Camden, SC 1671 Springdale Drive PC Fee 03/01/90, 06/24/93(a) 22.97 166,197 Columbia, SC 5420 Forest Drive PC Fee 08/01/95, 11/13/95(a) 7.04 46,700 Mt.Pleasant, SC 1500 Highway 17 North PC Fee 03/01/92, 03/30/95(a) 22.70 205,032 No Charleston, SC 7400 Rivers Avenue PC Fee 08/01/89, 11/07/93(a) 28.10 251,007 Orangeburg, SC 2795 North Road PC Fee 07/01/94, 03/22/95(a) 2.65 22,200 Simpsonville, SC 621 Fairview Road PC Fee 10/01/90, 01/03/94(a) 17.23 142,133 Union, SC Highway 176 By-Pass #1 PC Fee 06/01/90, 06/24/93(a) 45.65 184,331 South Dakota - ------------ Watertown, SD 1300 9th Avenue, S.E. MM Fee 11/01/77 29.30 285,495 Texas - ----- Ft. Worth, TX SWC Eastchase Pkwy. and I-30 PC Fee 12/01/95, 07/02/96(a) 17.00 205,027 San Antonio, TX 125 NE Loop 410 PC Fee(6) 12/30/96, 01/23/97(a) 26.45 286,394 Vermont - ------- Berlin, VT Route 4 MM Fee 09/01/86 50.25 174,646 Virginia - -------- Fairfax, VA 12210 Fairfax Towne Center PC Fee(6) 10/01/94, 11/17/95(a) 22.79 253,941 Martinsville, VA 240 Commonwealth Blvd MM Fee(6) 07/01/89 43.73 435,401 Pulaski, VA 1000 Memorial Dr PC Fee 09/01/90, 04/28/93(a) 21.93 143,299 Winchester, VA 2190 So Pleasant Valley PC Fee 01/01/90, 12/10/93(a) 26.42 230,940 - --------------------- ---------------------- ------------ ----------- ----------------- ------ ---------- 25,189,531
Mortgage Obligation Average as of Total Base December 31, Annualized Rent per Percent Center / Property 1997 Base Rent(3) sq.ft.(4) Leased(6) Anchor Tenants (Lease Expiration/Option Expiration) -------------------- ----------- ------------ --------- -------- --------------------------------------------------- Erie, PA 3,936,534 8.15 100.0% Wal-Mart (2015/2045), Lowe's (2015/2045), Media Play (2010/2025), Kohl's (2016/2046) East Norriton, PA 1,115,547 6.41 100.0% Kmart (2000/2050), Acme (2002/2027), Thrift Drug (2002/2022) South Carolina -------------- Anderson, SC 858,356 5.58 93.8% Wal-Mart (2010/2040), Ingles (2011/2066) Anderson, SC 143,316 10.06 100.0% Wal-Mart (not owned), Sam's (not owned) Camden, SC 988,097 5.95 100.0% Wal-Mart (2009/2039), Winn-Dixie (2011/2036), Goody's (2001/2016) Columbia, SC 487,750 10.44 100.0% Wal-Mart (not owned) Mt.Pleasant, SC 6,889,913 1,478,295 7.28 99.1% Wal-Mart (not owned), Lowe's (2012/2032), Piggly Wiggly (2012/2022), TJMaxx (2002/2012) No Charleston, SC 1,792,159 7.38 96.8% Wal-Mart (2009/2039), Office Warehouse (2002/2012), Service Merchandise (not owned) Orangeburg, SC 227,175 10.23 100.0% Wal-Mart (not owned) Simpsonville, SC 837,111 5.89 100.0% Kmart (2015/2065), Ingles (2011/2065) Union, SC 1,006,394 5.46 100.0% Wal-Mart (2009/2039), Belk's (2010/2030), Winn-Dixie (2010/2035) South Dakota ------------ Watertown, SD 1,376,125 4.96 97.2% Kmart (2002/2052), J.C. Penney (1998/2018), Herberger's (1999/2019), Osco (1998/2003) Texas ----- Ft. Worth, TX 2,280,923 11.12 100.0% PetsMart (2011/2036), MJ Designs (2011/2031), Ross Dress For Less (2006/2026), Toys R Us (not owned), Target (not owned) San Antonio, TX 3,971,782 14.27 97.2% Ross Dress For Less (2007/2027), DSW Warehouse (2007/2027) , Best Buy (2011/2026), Oshman's (2017/2037), HomePlace (2012/2027) Vermont ------- Berlin, VT 4,940,000 816,547 4.90 95.5% J.C. Penney (2009/2034) Virginia -------- Fairfax, VA 4,012,280 16.05 98.4% United Artists (2014/2034), Safeway (2019/2054), TJMaxx (2009/2024), Bed, Bath & Beyond (2010/2020), Tower Records (2009/2019) Martinsville, VA 2,907,527 7.16 93.2% J.C. Penney (2009/2034), Leggett (2009/2024), Sears (2009/2029), Kroger (2017/2062), Goody's (2006/2016) Pulaski, VA 837,449 6.10 95.8% Wal-Mart (2011/2041), Food Lion (2011/2031) Winchester, VA 9,294,686 2,012,148 8.90 97.9% Office Max (2012/2027), Kohl's (2018/2048), Giant Foods (2010/2040), Books-A-Million (2007/2017) -------------------- ----------- ------------ --------- -------- --------------------------------------------------- $89,675,698 $204,506,635 $8.48 96.8%
================== Footnotes: (1) "PC" indicates a power center or a community shopping center, "NC" indicates a neighborhood shopping center, "MM" indicates an enclosed mini-mall and "BC" indicates a business center. 17 18 (2) Indicates the date the center was developed. Dates denoted with (a), indicate the date on which the property was acquired by the company following completion of the IPO. (3) Includes space leased as of December 31, 1997,for which rent was being paid but which was not then occupied; also includes tenant leases signed as of said date relating to approximately $800,000 in base revenue which has not yet been fully billed. (4) Calculated as total annualized base rentals divided by Company-owned GLA actually leased as of December 31, 1997 (5) Includes space leased as of December 31, 1997,for which rent was being paid but which was not then occupied; also includes tenant leases signed as of said date relating to approximately 158,000 square feet which have not yet been fully occupied. (6) One of fourteen (14) properties owned through joint ventures which serve as collateral for joint venture mortgage debt aggregating approximately $389.2 million (of which the Company's proportionate share is $190.3 million) which is not reflected in the consolidated indebtedness. * This anchor tenant has closed and sublet the space. ** This tenant-owned anchor store has closed. *** This tenant-owned anchor store has closed and the space has been sublet. **** This anchor tenant continues to pay rent to the Company but does not occupy or sublet the space. 18 19 Item 3. LEGAL PROCEEDINGS Other than routine litigation and administrative proceedings arising in the ordinary course of business, the Company is not presently involved in any litigation nor, to its knowledge, is any litigation threatened against the Company or its properties, which is reasonably likely to have a material adverse effect on the liquidity or results of operations of the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS Pursuant to Instruction 3 to Item 401(b) of Regulation S-K, the following information is reported below. (a) The executive officers of the Company are as follows:
Name Age Position and Office with the Company - -------------------- --------- --------------------------------------- Scott A. Wolstein 45 Chairman of the Board of Directors and Chief Executive Officer James A. Schoff 52 Executive Vice President, Chief Operating Officer and a Director John R. McGill 43 Vice President and Director of Development Joan U. Allgood 45 Vice President and General Counsel Loren F. Henry 50 Vice President and Director of Management William H. Schafer 40 Vice President and Chief Financial Officer Alan Bobman 37 Regional Vice President of Leasing Steven M. Dorsky 40 Regional Vice President of Leasing Robin R. Walker 41 Regional Vice President of Leasing
-19- 20 Scott A. Wolstein has been the President, Chief Executive Officer and a Director of the Company since its organization and assumed the responsibilities of Chairman of the Board of Directors in February 1997. Prior to the organization of the Company, Mr. Wolstein was a principal and executive officer of its predecessor entities since before 1992. Mr. Wolstein is a graduate of the Wharton School at the University of Pennsylvania and of the University of Michigan Law School. Following his graduation from the University of Michigan Law School, Mr. Wolstein was associated with the Cleveland law firm of Thompson, Hine & Flory. He has served as President of the Board of Trustees of the United Cerebral Palsy Association of Greater Cleveland and as a member of the Board of The Great Lakes Theater Festival, Neighborhood Progress, Inc., The Park Synagogue, Cleveland's Convention and Visitors Bureau of Greater Cleveland and Bellefaire. He is currently a member of the Executive Committee of the Board of Trustees of the National Association of Real Estate Investment Trusts and a member of the Board of Trustees of the International Council of Shopping Centers and serves as the General Co-Chairman of the Cleveland Campaign for the State of Israel Bonds. He is also a member of the Young Presidents Organization, the Urban Land Institute, the National Realty Committee, and the Wharton Real Estate Center. Mr. Wolstein is the son of Bert L. Wolstein, Chairman Emeritus James A. Schoff has been Executive Vice President, Chief Operating Officer and a Director of the Company since its organization. After graduating from Hamilton College and Cornell University Law School, Mr. Schoff practiced law with the firm of Thompson, Hine and Flory where he specialized in the acquisition and syndication of real estate properties. Mr. Schoff serves as a member of the Board of Trustees of the Western Reserve Historical Society, the Children's Aid Society and the Cleveland Ballet. John R. McGill has been affiliated with the Company and its predecessor entities since 1969. During his tenure with the Company he has been involved with the coordination and development of in excess of 85 properties, including land acquisition, major tenant lease negotiations, and the overall development program. Mr. McGill has been a Vice President and Director of Development of the Company since April 1993. Joan U. Allgood has been a Vice President and General Counsel of the Company since its organization as a public company and General Counsel of its predecessor entities since 1987. Mrs. Allgood practiced law with the firm of Thompson, Hine and Flory from 1983 to 1987, and is a graduate of Denison University and Case Western Reserve University School of Law. Loren F. Henry has been a Vice President, Director of Management of the Company since its organization as a public Company and served as President of one of its predecessor entities from 1984-1993. Mr. Henry earned a Bachelor of Arts degree in Business Administration and Mathematics from Winona State College. William H. Schafer has been a Vice President and Chief Financial Officer of the Company since its organization as a public company and the Chief Financial Officer of its predecessor entities since April 1992. Mr. Schafer joined the Cleveland, Ohio office of the Price Waterhouse LLP accounting firm in 1983 and served there as a Senior Manager from July 1990 until he joined the organization in 1992. Mr. Schafer graduated from the University of Michigan with a Bachelor of Arts degree in Business Administration. -20- 21 Alan Bobman joined the Company in October 1995 as Regional Vice President of Leasing. Mr. Bobman was previously Divisional Director of Real Estate at Charming Shoppes, Inc. which operates the Fashion Bug and Fashion Bug Plus stores nationwide. He was employed at Charming Shoppes since 1985, and is an Insurance and Real Estate graduate of Penn State University. Steven M. Dorsky has been a Regional Vice President of Leasing since November 1995. Prior to joining the Company, he was an Assistant Vice President and Senior Leasing Associate for the Cleveland based retail brokerage and management firm, The Hausman Companies. Mr. Dorsky earned a Bachelor of Arts degree in business from Macalester College and a Masters degree in Social Administration from Case Western Reserve University - School of Applied Social Science. Robin R. Walker joined the Company in April 1995 and was appointed Regional Vice President of leasing in November 1995. Prior to joining the Company, Ms. Walker was president of Aroco, Inc., a retail brokerage and tenant representation firm based in Alabama. Ms. Walker attended the University of Alabama where she earned her degree in elementary education. -21- 22 Part II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The following table shows the high and low sales price of the Company's common shares on the New York Stock Exchange (the "NYSE") for each quarter in 1997 and 1996 and the dividends paid per common share with respect to each such quarter:
Dividends Paid per 1997 High Low Common Share - ----------- -------- ------- ------------ 1st quarter $ 38-5/8 $34-1/4 $ .63 2nd quarter 40 35-7/8 .63 3rd quarter 40-1/4 38-1/4 .63 4th quarter 41-1/4 37-5/16 .63 -------- $ 2.52
Dividends Paid per 1996 High Low Common Share - ----------- -------- ------- ------------- 1st quarter $ 31-3/4 $28-1/8 $ .60 2nd quarter 32 28-1/8 .60 3rd quarter 33-1/8 30-1/2 .60 4th quarter 37-1/4 32-1/8 .60 -------- $ 2.40
The approximate number of record holders of the Company's common shares, (the only class of common equity) at March 16, 1998 was 425, and the approximate number of beneficial owners of such shares was 20,000. In January 1998, the Company declared its 1998 first quarter dividend to shareholders of record on February 13, 1998 of $.655 per share, a 4.0% increase over the quarterly dividend rate of $.63 per share in 1997. The Company intends to continue to declare quarterly dividends on its common shares. However, no assurances can be made as to the amounts of future dividends, since such dividends are subject to the Company's cash flow from operations, earnings, financial condition, capital requirements and such other factors as the Board of Directors considers relevant. The Company is required by the Internal Revenue Code of 1986, as amended, to distribute at least 95% of its REIT taxable income. The amount of cash available for dividends is impacted by capital expenditures and debt service requirements to the extent that the Company were to fund such items out of cash flow from operations. In June 1995, the Company implemented a dividend reinvestment plan under which shareholders may elect to reinvest their dividends automatically in common shares. Under the plan, the Company may, from time to time, elect to purchase common shares in the open market on behalf of participating shareholders or may issue new common shares to such shareholders. -22- 23 Item 6. SELECTED FINANCIAL DATA The financial data included in the following table has been selected by the Company and has been derived from the financial statements for the last five years and include the information required by Item 301 of Regulation S-K. COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA (Amounts in thousands, except per share data)
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------------------- OPERATING DATA: Pro forma 1997(1) 1996(1) 1995(1) 1994(1) 1993(2) 1993(1) --------- --------- --------- --------- --------- --------- Revenues (primary real estate rentals) $ 169,040 $ 130,905 $ 107,805 $ 81,974 $ 54,606 $ 54,531 --------- --------- --------- --------- --------- --------- Expenses: Rental operation 47,017 35,123 28,069 22,802 16,963 16,863 Depreciation & amortization 32,313 25,062 21,865 16,211 10,393 10,393 Interest 35,558 29,888 29,595 21,423 13,407 15,060 --------- --------- --------- --------- --------- --------- 114,888 90,073 79,529 60,436 40,763 42,316 --------- --------- --------- --------- --------- --------- Income before equity in net income (loss) from joint ventures, minority equity interests, gains on sales of real estate, non-recurring charges and extraordinary items 54,152 40,832 28,276 21,538 13,843 12,215 Equity in net income (loss) of joint ventures 10,893 8,710 486 (186) (347) (347) Minority equity interests (1,049) - - - - Gain on sales of real estate 3,526 - 300 - 122 122 Non-recurring charges (3) - - - - - (2,641) --------- --------- --------- --------- --------- --------- Income before extraordinary item 67,522 49,542 29,062 21,352 13,618 9,349 Extraordinary item (3) - - (3,557) (216) - (731) --------- --------- --------- --------- --------- --------- Net income $ 67,522 $ 49,542 $ 25,505 $ 21,136 $ 13,618 $ 8,618 ========= ========= ========= ========= ========= ========= Net income applicable to common shareholders $ 53,322 $ 35,342 $ 24,250 $ 21,136 $ 13,618 $ 8,618 ========= ========= ========= ========= ========= ========= Earnings per share data - Basic: (4) Income before extraordinary item $ 2.06 $ 1.67 $ 1.48 $ 1.35 $ 1.10 $ 0.82 Net income $ 2.06 $ 1.67 $ 1.29 $ 1.34 $ 1.10 $ 0.76 Weighted average number of common shares 25,880 21,147 18,780 15,806 12,391 11,383 Earnings per share data- Diluted: (4) Income before extraordinary item $ 2.05 $ 1.67 $ 1.47 $ 1.34 $ 1.10 $ 0.82 Net income $ 2.05 $ 1.67 $ 1.28 $ 1.33 $ 1.10 $ 0.76 Weighted average number of common shares 26,062 21,186 18,909 15,916 12,402 11,394 Annual cash dividend $ 2.52 $ 2.40 $ 2.16 $ 1.92 $ 1.60(5) $ 1.42
AT DECEMBER 31, ----------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Real estate (at cost) $1,325,742 $ 991,647 $ 848,373 $ 686,890 $ 459,049 Real estate, net of accumulated depreciation 1,154,005 849,608 728,333 586,839 375,183 Advances to and investments in joint ventures 136,267 106,796 83,190 8,710 9,078 Total assets 1,391,918 975,126 830,060 611,116 395,942 Total debt 668,521 478,432 405,726 394,435 184,534 Shareholders' equity 669,050 469,336 404,161 203,508 197,118
-23- 24 ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------- Proforma 1997(1) 1996(1) 1995(1) 1994(1) 1993(2) 1993(1) --------- --------- --------- --------- --------- --------- OTHER DATA: Cash flow provided from (used in) Operating activities $ 94,383 $ 75,820 $ 49,039 $ 39,112 (6) $ 19,151 Investing activities (416,220) (199,670) (217,198) (191,810) (6) (137,232) Financing activities 321,842 123,851 167,252 150,373 (6) 120,417 Funds from operations (7): Net income applicable to common shareholders $ 53,322 $ 35,342 $ 24,250 $ 21,136 $ 13,618 $ 8,618 Depreciation and amortization 31,955 24,832 21,706 16,211 10,393 10,393 Equity in net (income) loss of joint ventures (10,893) (8,710) (486) 186 347 347 Joint venture funds from operations 16,077 13,172 1,364 217 105 105 Minority interest expense (OP Units) 10 - - - - - Gain on sales of real estate (3,526) - (300) - (122) (122) Non-recurring and extraordinary items (3) - - 3,557 216 - 3,372 --------- --------- --------- --------- --------- --------- $ 86,945 $ 64,636 $ 50,091 $ 37,966 $ 24,341 $ 22,713 ========= ========= ========= ========= ========= ========= Weighted average number of common shares outstanding 25,880 21,147 18,780 15,806 12,391 11,383
(1) As described in the consolidated financial statements, the Company acquired eight properties in 1997 (one of which is owned through a joint venture), five properties in 1996, 20 properties in 1995 (10 of which are owned through joint ventures), 14 properties in 1994 and 17 properties in 1993. (2) Pro forma adjustments reflect only those adjustments associated with the Company's IPO and do not include the pro forma adjustments associated with the secondary offerings and acquisitions in 1994 and 1993. (3) The non-recurring charges in 1993 relate to costs incurred in connection with the transfer of the initial properties (primarily transfer taxes and title insurance costs) and the 1993 extraordinary item relates to debt prepayment fees and write-off of deferred finance costs. In 1995 and 1994, the extraordinary charges relate primarily to the write-off of deferred finance costs. (4) Earnings per share data is reflected for all the years utilizing SFAS 128. (5) Represents annualized dividend rate as declared by the Board of Directors. (6) Pro forma information has not been presented. (7) Industry analysts generally consider funds from operations ("FFO") to be an appropriate measure of the performance of an equity REIT. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. FFO is defined generally as net income applicable to common shareholder excluding gains (losses) on sale of property, non-recurring charges and extraordinary items, adjusting for certain noncash items, principally real property depreciation and equity income (loss) from its joint ventures and adding the Company's proportionate share of FFO of its unconsolidated joint ventures, determined on a consistent basis. The Company calculates FFO in accordance with the foregoing definition, which is currently used by NAREIT. Certain other real estate companies may calculate FFO in a different manner. -24- 25 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements, the notes thereto and the comparative summary of selected financial data appearing elsewhere in this report. Historical results and percentage relationships set forth in the consolidated financial statements, including trends which might appear, should not be taken as indicative of future operations. The Company considers portions of this information to be forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company's expectations for future periods. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including, among other factors, local conditions such as an oversupply of space or a reduction in demand for real estate in the area, competition from other available space, dependence on rental income from real property or the loss of a major tenant. COMPARISON OF 1997 TO 1996 RESULTS OF OPERATIONS REVENUES FROM OPERATIONS Total revenues increased $38.1 million, or 29.1%, to $169.0 million for the year ended December 31, 1997 as compared to $130.9 million in 1996. Base and percentage rents for 1997 increased $28.2 million, or 28.7%, to $126.3 million as compared to $98.1 million in 1996. Approximately $3.5 million of the increase in base and percentage rental income was the result of new leasing, retenanting and expansion of the Core Portfolio Properties (shopping center properties owned as of January 1, 1996), an increase of 4.0% over 1996 revenues from Core Portfolio Properties. The 12 shopping centers acquired by the Company in 1997 and 1996 contributed $24.1 million of additional revenue and the four new shopping center developments contributed $4.0 million. The above increases were offset by the contribution of two properties to a joint venture in September 1996 which reduced base and percentage rental revenue by $3.0 million. At December 31, 1997, the occupancy rate of the Company's shopping centers aggregated 96.1% as compared to 94.8% at December 31, 1996. At December 31, 1997, the Company's portfolio was actually 96.7% leased, including leases signed where occupancy had not occurred as of that date. The average annualized base rent per leased square foot, including those properties owned through joint ventures, was $8.49 at December 31, 1997 as compared to $7.85 at December 31, 1996. During 1997, same store sales, for those tenants required to report sales (approximately 12.6 million square feet), increased 4.17% to $230.59 per square foot as compared to $221.35 per square foot in 1996. The increase in recoveries from tenants of $8.2 million was directly related to the increase in operating and maintenance expenses and real estate taxes associated with the 1997 and 1996 shopping center acquisitions and developments. Recoveries were approximately 90.0% of operating and maintenance expenses and real estate taxes in 1997 as compared to 89.4% in 1996. Management fee income and other income increased by approximately $1.7 million which generally related to an increase in interest income of approximately $0.9 million, management fee income of approximately $0.3 million, development fee income of approximately $0.3 million and kiosk income (temporary tenants) of approximately $0.2 million. EXPENSES FROM OPERATIONS Rental operating and maintenance expenses for the year ended December 31, 1997 increased $3.6 million, or 28.7%, to $16.0 million as compared to $12.4 million in 1996. An increase of $2.6 million was attributable to the 16 shopping centers acquired and developed in 1997 and 1996 and an increase of $1.0 million was related to the Core Portfolio Properties generally associated with increased maintenance activities at a majority of the Company's shopping centers. Real estate taxes increased $5.4 million, or 37.1%, to $20.0 million for the year ended December 31, 1997 as compared to $14.6 million in 1996. This increase was primarily attributable to the growth related to the 16 shopping centers acquired and developed in 1997 and 1996 which contributed $5.1 million of the increase and $0.3 million generally related to expansions associated with the Core Portfolio Properties. General and administrative expenses increased $2.9 million, or 35.9%, to $11.0 million for the year ended December 31, 1997 as compared to $8.1 million in 1996. The increase was primarily attributable to the growth of the Company associated with the 1997 and 1996 acquisitions, expansions and developments and increases in various incentive and deferred compensation costs. The Company continues to maintain a conservative policy with regard to the expensing of all internal leasing salaries, legal salaries and related expenses associated with the leasing and re-leasing of existing space. In addition, the Company continues to expense all internal costs associated with acquisitions. Total general and administrative expenses were approximately 4.4% and 4.2% of total revenues, including revenues of joint ventures, for the years ended December 31, 1997 and 1996, respectively. Depreciation and amortization expense increased $7.2 million, or 28.9%, to $32.3 million for the year ended December 31, 1997 as compared to $25.1 million in 1996. The increase was primarily attributable to the growth related to the 16 shopping centers acquired and developed in 1997 and 1996 which contributed $6.7 million of the increase and $1.1 million primarily related to the expansions and improvements associated with the Core Portfolio Properties. The above increases were offset by the contribution of two properties to a joint venture in September 1996 which reduced depreciation expense by $0.6 million. Interest expense, net of amounts capitalized, increased $5.7 million, or 19.0%, to $35.6 million for the year ended December 31, -25- 26 1997 as compared to $29.9 million in 1996. The overall increase in interest expense was primarily related to the acquisition and development of shopping centers during 1997 and 1996. The weighted average debt outstanding and related weighted average interest rate during 1997 was $510.5 million and 7.7%, respectively, as compared to $426.5 million and 7.8%, respectively, during 1996. Interest capitalized, in conjunction with development and expansion projects, was $4.0 million for the year ended December 31, 1997 as compared to $3.3 million in 1996. OTHER Equity in net income of joint ventures increased $2.2 million, or 25.1%, to $10.9 million in 1997 as compared to $8.7 million in 1996. An increase of $0.8 million was attributable to the Community Center Joint Ventures primarily associated with the completion of construction at three of the ten shopping centers which were under construction at the date of acquisition and a gain on sale of land. The aforementioned increases were offset by an increase in interest costs associated with the refinancing of variable rate bridge financing to long term fixed rate financing in May 1997. An increase of $0.8 million was related to the formation of a joint venture with Ohio State Teachers Retirement Systems ("OSTRS") in September 1996. An increase of $0.4 million was related to the formation of a joint venture in January 1997 which acquired a shopping center in San Antonio, Texas. An increase of $0.2 million was related to the expansion and redevelopment of Liberty Fair Mall in the Martinsville, Virginia joint venture. The minority equity interest expense of $1.0 million for the year ended December 31, 1997 related to the minority equity in three shopping center properties acquired by the Company during 1997. The charge to income represents the priority distributions associated with the minority equity interests. Gain on sales of real estate aggregated $3.5 million for the year ended December 31, 1997. In March 1997, the Company sold two business centers in Highland Heights, Ohio aggregating approximately 113,000 square feet for approximately $5.7 million. The two business centers had been vacant for approximately 18 months. NET INCOME Net income increased $18.0 million to $67.5 million for the year ended December 31, 1997 as compared to $49.5 million in 1996. The increase in net income was attributable to increased net operating revenues (total revenues less operating and maintenance expenses, real estate taxes and general and administrative expense) aggregating $26.2 million, resulting from new leasing, retenanting and expansion of Core Portfolio Properties, and the 16 shopping centers acquired and developed in 1997 and 1996. An additional increase of $2.2 million related to increased equity income of joint ventures and an increase of $3.5 million related to the gain on sale of real estate. The increase in net operating revenues, equity income from joint ventures and gain on sale of real estate was offset by increases in depreciation, interest expense and minority equity interest of $7.2 million, $5.7 million and $1.0 million, respectively. COMPARISON OF 1996 TO 1995 RESULTS OF OPERATIONS REVENUES FROM OPERATIONS Total revenues increased $23.1 million, or 21.4%, to $130.9 million for the year ended December 31, 1996 as compared to $107.8 million in 1995. Base and percentage rents for 1996 increased $13.7 million, or 16.3%, to $98.1 million as compared to $84.4 million in 1995. Approximately $2.4 million of the increase in base and percentage rental income was the result of new leasing, retenanting and expansion of the Core Portfolio Properties (shopping center properties owned as of January 1, 1995) an increase of 3.3% over 1995 revenues from Core Portfolio Properties. The 15 shopping centers acquired by the Company in 1996 and 1995 contributed $10.5 million of additional revenue and the three new shopping center developments contributed $2.3 million. The above increases were offset by the contribution of two properties to a joint venture in September 1996, which reduced base and percentage rental revenue by $0.8 million and a decrease in business center base rents of $0.7 million. At December 31, 1996, the occupancy rate of the Company's shopping centers aggregated 94.8% as compared to 96.3% at December 31, 1995. Contributing to the decrease in occupancy was the Company's decision to terminate the leases of two Wal-Mart stores in Winchester and Martinsville, Virginia at the end of June 1996. The former Wal-Mart space in each center was leased to a variety of tenants at higher rents commencing in the fourth quarter of 1996 and first half of 1997. At December 31, 1996, the Company had entered into additional leases with anchor tenants aggregating in excess of 240,000 square feet of vacant space, including the above mentioned Wal-Mart space, which effectively adjusts the December 31, 1996 occupancy rate to 96.0%. The average annualized base rent per leased square foot, including those properties owned through joint ventures, was $7.85 at December 31, 1996 as compared to $7.61 at December 31, 1995. During 1996, same store sales, for those tenants required to report sales, increased 3.9% to $225.18 per square foot as compared to $216.70 per square foot in 1995. The increase in recoveries from tenants of $4.9 million was directly related to the increase in operating and maintenance expenses and real estate taxes and was primarily associated with the 1996 and 1995 shopping center acquisitions and developments. Recoveries were approximately 89.4% of operating and maintenance expenses and real estate taxes as compared to 88.1% in 1995. Management fee income and other income increased by approximately $4.5 million which generally related to an increase in management fee income of approximately $2.1 million associated with the formation of the Community Center Joint Ventures in November 1995, and the OSTRS Joint Venture in September 1996, and an increase in lease termination income of approximately $2.4 million. -26- 27 EXPENSES FROM OPERATIONS Rental operating and maintenance expenses for the year ended December 31, 1996 increased $3.1 million, or 34.0%, to $12.4 million as compared to $9.3 million in 1995. An increase of $2.3 million was attributable to the 18 shopping centers acquired and developed in 1996 and 1995 and an increase of $0.8 million in the Core Portfolio Properties, primarily attributed to higher repair and maintenance costs and snow removal costs in 1996 as compared to 1995. Real estate taxes increased $2.0 million, or 16.0%, to $14.6 million for the year ended December 31, 1996 as compared to $12.6 million in 1995. This increase was related to the 18 shopping centers acquired and developed in 1996 and 1995. General and administrative expenses increased $1.9 million, or 30.7%, to $8.1 million for the year ended December 31, 1996 as compared to $6.2 million in 1995. The increase was attributable to the growth of the Company related to the 1996 and 1995 acquisitions, joint ventures, expansions and developments. During the fourth quarter of 1995, the Company expanded its leasing staff and added three regional vice presidents of leasing, and throughout 1996, opened seven new regional leasing and operations offices in various cities throughout the country. Total general and administrative expenses were approximately 4.2% and 5.3% of total revenues, including revenues of joint ventures, for the years ended December 31, 1996 and 1995, respectively. Depreciation and amortization expense increased $3.2 million, or 14.6%, to $25.1 million for the year ended December 31, 1996 as compared to $21.9 million in 1995. The increase was primarily attributable to the growth related to the 18 shopping centers acquired and developed in 1996 and 1995 which contributed $2.9 million of the increase. The remaining $0.3 million related to the expansions and improvements associated with the Core Portfolio Properties. Interest expense increased $0.3 million, or 1.0%, to $29.9 million for the year ended December 31, 1996 as compared to $29.6 million for the year ended December 31, 1995. The overall increase in interest expense was primarily related to the acquisition and development of shopping centers during 1996. The weighted average debt outstanding and related weighted average interest rate during 1996 was $426.5 million and 7.8%, respectively, as compared to $394.8 million and 8.1%, respectively, during 1995. Interest capitalized, in conjunction with development and expansion projects, was $3.3 million for the year ended December 31, 1996 as compared to $2.5 million in 1995. OTHER Equity in net income of joint ventures increased $8.2 million to $8.7 million in 1996 as compared to $0.5 million in 1995. The increase was attributable to the formation of the Community Center Joint Ventures during the fourth quarter of 1995 and the OSTRS Joint Venture in the third quarter of 1996 which contributed $8.1 million and $0.3 million of equity in net income of joint ventures, respectively. This increase was offset by a $0.2 million increase in the equity in net loss from the Martinsville, Virginia joint venture. The increase in this joint venture's net loss was the result of the election to terminate its Wal-Mart lease. The former Wal-Mart space was released to two major tenants at higher rents commencing during the fourth quarter of 1996 and the first half of 1997. The extraordinary item, which aggregated $3.6 million for the year ended December 31, 1995, was primarily related to the write-off of unamortized deferred finance costs. NET INCOME Net income increased $24.0 million to $49.5 million for the year ended December 31, 1996 as compared to net income of $25.5 million in 1995. The increase in net income was attributable to increased net operating revenues (total revenues less operating and maintenance expenses, real estate taxes and general and administrative expense) aggregating $16.0 million, resulting from new leasing, retenanting and expansion of Core Portfolio Properties, and the 18 shopping centers acquired and developed in 1995 and 1996. An additional increase of $8.2 million related to the formation of the Community Center Joint Ventures and the OSTRS joint venture and an increase of $3.6 million related to a decrease in extraordinary charges. The increase in net operating revenues and equity income from joint ventures and reduction in extraordinary charges was offset by increases in depreciation and interest expense of $3.2 million and $0.3 million, respectively, and a decrease in gain on sales of land of $0.3 million. FUNDS FROM OPERATIONS Management believes that Funds From Operations ("FFO") provides an additional indicator of the financial performance of a Real Estate Investment Trust. FFO is defined generally as net income applicable to common shareholders excluding gains (losses) on sales of real estate, non-recurring charges and extraordinary items, adjusted for certain non-cash items, principally real property depreciation and equity income (loss) from its joint ventures and adding the Company's proportionate share of FFO of its unconsolidated joint ventures, determined on a consistent basis. The Company calculates FFO in accordance with the foregoing definition, which is currently used by the National Association of Real Estate Investment Trusts ("NAREIT"). Certain other real estate companies may calculate Funds From Operations in a different manner. -27- 28 In 1997, FFO increased $22.3 million, or 34.5%, to $86.9 million as compared to $64.6 million and $50.1 million in 1996 and 1995, respectively. The increases in each year were attributable to the continuing increases in revenues from Core Portfolio Properties, acquisitions and developments. The Company's calculation of FFO is as follows (in thousands):
Year ended December 31, 1997 1996 1995 ------- ------- ------- Net income applicable to common shareholders(1) $53,322 $35,342 $24,250 Depreciation of real property 31,955 24,832 21,706 Equity in net income of joint ventures (10,893) (8,710) (486) Joint ventures' FFO(2) 16,077 13,172 1,364 Minority interest expense (OP Units) 10 - - Gain on sales of real estate (3,526) - (300) Extraordinary item - - 3,557 ------- ------- ------- $86,945 $64,636 $50,091 ======= ======= =======
(1) Includes straight line rental revenues of approximately $2.0 million, $0.7 million and $0.1 million in 1997, 1996 and 1995, respectively, primarily related to recent acquisitions and new developments. (2)Joint ventures funds from operations are summarized as follows (in thousands):
Year ended December 31, 1997 1996 1995 ------- ------- ------- Net income(a) $22,132 $17,419 $ 972 Depreciation of real property 11,658 8,924 1,756 Gain on sale of land (1,085) - - ------- ------- ------- $32,705 $26,343 $ 2,728 ======= ======= ======= DDRC ownership interests(b) $16,077 $13,172 $ 1,364 ======= ======= =======
(a) Includes straight-line rental revenue of approximately $2.9 million, $2.3 million and $0.4 million in 1997, 1996 and 1995, respectively. The Company's proportionate share of straight-line rental revenues was $1.4 million, $1.1 million and $0.2 million in 1997, 1996 and 1995, respectively. (b) At December 31, 1997, the Company owned a 50% joint venture interest relating to 13 operating shopping center properties and a 35% joint venture interest in one shopping center property. At December 31, 1996, the Company owned a 50% joint venture interest in 13 operating shopping center properties. At December 31, 1995, the Company owned a 50% joint venture interest in 11 shopping center properties, ten of which were acquired during the fourth quarter of 1995. LIQUIDITY AND CAPITAL RESOURCES The Company anticipates that cash flow from operating activities will continue to provide adequate capital for all principal payments, recurring tenant improvements, as well as dividend payments in accordance with REIT requirements and that cash on hand, borrowings under its existing revolving credit facilities, as well as other debt and equity alternatives will provide the necessary capital to achieve continued growth. Cash flow from operating activities for 1997 increased to $94.4 million as compared to $75.8 million in 1996. The increase was attributable to the 16 shopping center acquisitions and developments completed in 1997 and 1996, new leasing, expansion and retenanting of the Core Portfolio Properties and the equity offerings completed in 1997 and 1996. The Company satisfied its REIT requirement of distributing at least 95% of ordinary taxable income with declared common and preferred share dividends of $79.7 million in 1997 as compared to $66.0 million and $41.8 million in 1996 and 1995, respectively. Accordingly, federal income taxes were not incurred at the corporate level. The Company's common share dividend payout ratio for the year approximated 75.3% of its 1997 FFO as compared to 80.3% and 81.5% in 1996 and 1995, respectively. An increase in the 1998 quarterly dividend per common share to $0.655 from $0.63 was approved in December 1997 by the Company's Board of Directors. It is anticipated that the new dividend level will result in a more conservative payout ratio as compared to prior years. A lower payout ratio will enable the Company to retain more capital which will be utilized towards attractive investment opportunities in the development, acquisition and expansion of portfolio properties. -28- 29 ACQUISITIONS, DEVELOPMENTS AND EXPANSIONS During the three year period ended December 31, 1997, the Company and its joint ventures expended $1.3 billion, net, to acquire, develop, expand, improve and retenant its properties as follows (in millions):
1997 1996 1995 ------ ------ ------ COMPANY: Acquisitions $267.9 $113.9 $ 81.6 Completed expansions 29.8 24.6 25.8 Developments and construction in progress 41.1 48.2 58.6 Tenant improvements, building renovations and furniture and fixtures 4.2 1.1 1.1 Other real estate investments 72.1 - - ------ ------ ------ 415.1 187.8 167.1 Less real estate sales and property contributed to joint ventures (8.9) (44.5) (5.6) ------ ------ ------ Company Total 406.2 143.3 161.5 ------ ------ ------ JOINT VENTURES: Acquisitions / Contributions 38.8 42.8 450.5 Completed expansions 9.2 - - Developments and construction in progress 31.9 47.1 4.5 Tenant improvements and building renovations 0.2 - - 80.1 89.9 455.0 Less real estate sales (6.1) - - ------ ------ ------ Joint Ventures Total 74.0 89.9 455.0 ------ ------ ------ $480.2 $233.2 $616.5 ====== ====== ======
During 1997, the Company acquired seven shopping centers aggregating 2.4 million square feet of Company owned gross leasable area (GLA) for an aggregate investment of approximately $267.9 million. In addition, in January 1997, the Company entered into a joint venture with certain institutional investors which are advised by DRA Advisors, Inc. to acquire a 0.3 million square foot shopping center located in San Antonio, Texas. The aggregate cost of the shopping center was approximately $38.3 million of which the Company's proportionate ownership share is 35%. The Company also contributed approximately $0.5 million of additional assets to the OSTRS Joint Venture during 1997. During 1997, the Company and its joint ventures completed expansions and redevelopments aggregating approximately 0.8 million square feet at an aggregate cost of approximately $39.0 million at 13 of its shopping centers. The Company is currently expanding seven shopping centers and will continue to pursue additional expansion opportunities. The Company and its joint ventures currently have approximately 175 acres of undeveloped land consisting of 70 parcels, primarily adjacent to its existing shopping centers, available for development, expansion or sale. During 1997, the Company substantially completed the construction of four shopping centers which included: (i) a 235,000 square foot Phase II development of the Canton, Ohio shopping center; (ii) a 500,000 square foot shopping center in Boardman, Ohio; (iii) a 475,000 square foot shopping center in Stow, Ohio and (iv) an 84,000 square foot shopping center in Aurora, Ohio. Development activity was completed at two of the Company's joint venture shopping centers located in Atlanta, Georgia and Framingham, Massachusetts which were acquired in connection with the Community Center Joint Ventures in November 1995. The Company has commenced construction on two additional shopping centers which include a 200,000 square foot Phase II development of the Erie, Pennsylvania center, and a 445,000 square foot shopping center in Merriam, Kansas which is being developed through a joint venture formed in October 1996, 50% of which is owned by the Company. These shopping centers are scheduled for completion during the last half of 1998. The Company has also commenced the initial development of three additional shopping centers which include: (i) a 240,000 square foot shopping center in Toledo, Ohio; (ii) a 170,000 square foot shopping center in Solon, Ohio and (iii) a 230,000 square foot shopping center in Oviedo, Florida (a suburb of Orlando). All three centers are scheduled for completion during the fourth quarter of 1998. The Company is also involved with, or pursuing, joint venture development opportunities on eight additional projects with various developers throughout the country at an aggregate projected cost of approximately $300 million. The majority of projects should commence development in 1998 and are currently scheduled for completion in 1999. In December 1997, the Company acquired 33 retail redevelopment sites, formerly occupied by Best Products, at a cost of approximately $54.5 million. In February 1998, these assets were contributed to the Retail Value Fund, a joint venture with Prudential Real Estate Investors. See discussion under "Financing Activities" below regarding the Retail Value Fund. In December 1997, the Company acquired a 42.5% ownership interest in a 584,000 square foot shopping center located in Princeton, New Jersey at an initial cost of approximately $7.7 million. During the first quarter of 1998, the Company anticipates acquiring the balance of the ownership interest in the property through the issuance of approximately 11,850 Operating Partnership Units which will be convertible into equivalent shares of the Company's common stock and the assumption of debt. Upon completion of the transaction, the Company's aggregate investment will be approximately $36.4 million, including assumption of debt of approximately $27.7 million. The Company also acquired a 45.1% ownership interest in an adjacent development site at an initial cost of approximately $9.9 million. Upon completion of construction the Company anticipates acquiring the balance of the ownership interest in exchange for cash and Operating Partnership Units. -29- 30 During 1996, the Company acquired five shopping centers aggregating 1.1 million square feet of Company owned GLA (Gross Leasable Area) for an aggregate purchase price of approximately $113.9 million. In September 1996, the Company entered into a joint venture with OSTRS. In conjunction with the formation of the joint venture, the Company contributed to the joint venture two recently developed shopping centers with a net book value of $41.6 million and non-recourse mortgage debt aggregating $36.4 million. OSTRS funded initial cash contributions of $11.6 million, which was used to repay a portion of the non-recourse mortgage debt. In addition to owning a 50% interest in the joint venture, the Company continues to manage the two properties pursuant to a management agreement. During 1996, the Company completed expansions at seven of its shopping centers aggregating approximately 375,000 square feet for an aggregate cost of approximately $24.6 million. During 1996, the Company completed the first phase of a 520,000 square foot shopping center development in Canton, Ohio for an aggregate cost of $21.2 million. This property was contributed into the joint venture with OSTRS as discussed above. The Company also completed the development of the initial phase of a shopping center in Aurora, Ohio aggregating approximately 84,000 square feet at a total cost of $4.9 million. Construction had also commenced on the development of four additional shopping centers aggregating approximately 1.7 million square feet for an aggregate projected cost of approximately $117 million. In addition, the Company completed the development of the Independence, Missouri shopping center, which is one of the three Community Center Joint Venture properties acquired while under development in 1995 through the Homart transactions as described below. The remaining two shopping centers under development, located in Framingham, Massachusetts and Atlanta, Georgia, were in the final stages of construction. As of December 31, 1996, the majority of tenants had opened at each of these centers. During 1995, the Company acquired ten shopping centers aggregating 1.2 million square feet of Company owned GLA at an aggregate purchase price of approximately $81.6 million. On November 17, 1995, the Company formed a joint venture to acquire the Homart Community Center Division of Sears, Roebuck and Co. ("Sears"). The Homart Community Center Division included ten power centers, which aggregated in excess of four million square feet of GLA, and are located in major metropolitan areas throughout the United States and several outlots and pad sites adjacent to the ten power centers and certain other power centers previously sold by Sears (the "Community Center Properties"). Construction of seven of the ten power centers was complete or substantially complete at the time of acquisition and three of the power centers were under construction. The Company, or a wholly owned subsidiary of the Company, and its joint venture partners each purchased a 50% interest in each Community Center Joint Venture. The total purchase price for the Community Center Properties aggregated $449.2 million and was funded through $300.1 million of secured indebtedness at the joint venture level, $3.1 million of assumed net liabilities and $146.0 million of cash of which one-half each was provided by the Company and its joint venture partners. In addition, the Company paid cash of approximately $1.3 million relating to the purchase of certain rights to various development sites. During 1995, the Company completed over 400,000 square feet of expansions at 12 shopping centers for a total cost of approximately $25.8 million. During 1995, the Company completed the first phase of a 480,000 square foot shopping center development in Erie, Pennsylvania; and the first phase of a 245,000 square foot redevelopment in Highland Heights, Ohio. The Company also completed the development of a 195,000 square foot shopping center in Xenia, Ohio. FINANCING ACTIVITIES The above acquisitions, developments and expansions were financed through cash provided from operating activities, revolving credit facilities, mortgages assumed, construction loans and debt and equity offerings. Total debt outstanding at December 31, 1997 was $668.5 million as compared to $478.4 million and $405.7 million at December 31, 1996 and 1995, respectively. In 1997, the Company increased total debt by $190.1 million primarily to fund acquisitions, developments, expansions and other real estate investments. In January 1997, the Company completed a 3,350,000 common share offering and received net proceeds of approximately $115.8 million. In June 1997, the Company completed a 1,300,000 common share offering and received net proceeds of approximately $49.4 million. In September 1997, the Company completed a 507,960 common share offering with a registered unit investment trust and received net proceeds of approximately $18.8 million. In December 1997, the Company completed a 316,800 common share offering with a registered unit investment trust and received net proceeds of approximately $11.3 million. The proceeds from the four common share offerings mentioned above were primarily used to retire variable rate debt. The common share offerings significantly strengthened the Company's balance sheet and positioned the Company to continue to take advantage of attractive acquisition, development and expansion opportunities. In March 1997, the Company issued, through a grantor trust, $75 million of senior unsecured Pass-Through Asset Trust Securities (PATS). The PATS were issued at a discount to 99.53%, have a coupon rate of 7.125%, mature on March 15, 2012 and have a put date of March 15, 2002. The effective yield to the put date, after adjusting for the call premium and debt issue costs, is approximately 6.9%. In March 1997, the Company extended its $150 million unsecured revolving credit facility, agented by the First National Bank of Chicago and Bank of America NT&SA, for an additional year, through May 2000, and reduced the interest rate 15 basis points. The amendment also introduced a competitive bid feature for up to $75 million of borrowings. In April 1997, the Company extended its $10 million unsecured revolving credit facility with National City Bank through November 2000, and reduced the interest rate 15 basis points. -30- 31 In March 1997, the Company sold two business centers in Highland Heights, Ohio aggregating approximately 113,000 square feet for approximately $5.7 million and recognized a gain of approximately $3.5 million. The net proceeds of approximately $5.4 million were used to repay revolving credit debt. In 1997, the Company issued $102 million of senior unsecured fixed rate notes through its Medium Term Note program with maturities ranging from five to ten years and coupon interest rates ranging from 6.80% to 7.02%. The proceeds were used to repay variable rate borrowings on the Company's revolving credit facilities primarily associated with shopping center acquisitions. A summary of the aggregate gross proceeds raised of $828.4 million through the issuance of common shares, preferred shares and senior unsecured notes during the three year period ended December 31, is as follows (in millions):
1997 1996 1995 EQUITY: ------ ------ ------- Common shares $204.1 $ 75.6 $ 81.2 Class A preferred shares - - 105.4 Class B preferred shares - 4.4 40.0 ------ ------ ------- Total Equity 204.1 80.0 226.6 DEBT: Senior fixed rate notes 102.0 111.7 104.0 ------ ------ ------ $306.1 $191.7 $330.6 ====== ====== ======
In addition, in May 1997, the Company refinanced $322.5 million of non-recourse joint venture indebtedness relating to the Community Centers Joint Ventures. This indebtedness bears interest at a fixed coupon rate of 7.378% and matures in May 2002. At December 31, 1997, 1996 and 1995, outstanding borrowings associated with the Community Center Joint Ventures aggregated $322.5 million, $319.5 million and $303.3 million, respectively. During 1997, Convertible Debentures in the aggregate amount of $13.1 million had converted into 392,754 common shares. At December 31, 1997, the Company had $46.9 million of its 7% convertible debentures outstanding with a maturity date of August 1999 and a conversion price of $33.375 per common share. In January 1998, the Company issued $100 million of senior unsecured fixed rate notes through its Medium Term Note program with a ten year maturity and a 6.625% coupon rate. The proceeds were used to repay variable rate borrowings on the Company's revolving credit facilities. In December 1997, the Company and Hendon Associates formed a joint venture to acquire 33 retail sites, formerly occupied by Best Products, from Metropolitan Life. Under the terms of the joint venture with Hendon Associates, the Company advanced the capital to fund the purchase price of the assets and it is expected that the Company will receive (i) a priority return of its capital; (ii) a 15% compound annual return thereon and (iii) 75% of additional available cash flow. The 33 retail sites, are located in 13 states with concentrations in Ohio, California and New Jersey. These sites were acquired at an initial cost of approximately $54.5 million. It is expected that a majority of the 33 sites will be redeveloped and retenanted with a few sites being sold. At the date of acquisition, it was anticipated that the Company's ownership interest would be transferred to the "Retail Value Fund" ("Fund") with Prudential Real Estate Investors upon finalization of the joint venture documents which occurred on February 11, 1998. The Company contributed its ownership interest in the joint venture formed with Hendon Associates to the Fund, and in exchange for a 75% ownership interest in this joint venture, was reimbursed approximately $41.5 million from Prudential Real Estate Investors. The proceeds of $41.5 million were used to repay variable rate borrowings on the Company's revolving credit facilities. The Fund will invest in retail properties within the United States that are in need of substantial retenanting and market repositioning. This Fund may also make equity or debt investments in companies owning or managing retail properties as well as in third party development projects that provide significant growth opportunities. The retail property investments may include enclosed malls, neighborhood centers or other potential commercial redevelopment opportunities. The Company is expected to maintain an ownership interest of approximately 25% in the Fund. The Company will also own a majority of the stock of the general partner of the Fund. The general partner will own a 1% interest in the Fund and will receive an incentive participation equal to 33% of cash flow, after the limited partners receive a return of invested capital plus a cumulative return of 10% thereon. The Fund will have its own employees and the Company will assume retail management and operating responsibilities including leasing, redevelopment and accounting and will be paid fees in consideration of the foregoing services. CAPITALIZATION At December 31, 1997, the Company's capitalization consisted of $668.5 million of debt (excluding the Company's proportionate share of joint venture mortgage debt aggregating $190.3 million), $149.8 million of preferred stock and $1,059.0 million of market equity (market equity is defined as common shares outstanding multiplied by the closing price of the common shares on the New York Stock Exchange at December 31, 1997 of $38.25) resulting in a debt to total market capitalization ratio of .36 to 1.0 as compared to the ratios of .33 to 1.0 and .36 to 1.0 at December 31, 1996 and 1995, respectively. At December 31, 1997, the Company's total debt consisted of $526.0 million of fixed rate debt and $142.5 million of variable rate debt. It is management's intention that the Company have access to the capital resources necessary to expand and develop its business. Accordingly, the Company may seek to obtain funds through additional equity offerings or debt financing in a manner consistent with its intention to operate with a conservative debt capitalization policy and maintain its investment grade ratings with Moody's Investor Services and Standard and Poor's. In October 1997, the Company filed a shelf registration statement with the Securities and Exchange Commission under which $500 million of debt securities, preferred shares or common shares may be issued. As of December 31, 1997, the Company had $436.0 million available under its shelf registration statement ($336.0 million as of January 12, 1998). In addition, as of December 31, 1997, the Company had $20.3 million available under its $160.0 million of -31- 32 unsecured revolving credit facilities ($140.0 million as of February, 1998). On December 31, 1997, the Company also had 100 operating properties with $138.7 million, or 77.7%, of the total revenue for the year ended December 31, 1997 which were unencumbered thereby providing a potential collateral base for future borrowings. INFLATION Substantially all of the Company's long-term leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses enabling the Company to receive percentage rentals based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indices. In addition, many of the Company's leases are for terms of less than ten years, which permits the Company to seek to increase rents upon rerental at market rates. Most of the Company's leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. At December 31, 1997, approximately 78.7% of the Company's debt (excluding joint venture debt) bore interest at fixed rates with a weighted average maturity of approximately 4.6 years and a weighted average interest rate of approximately 7.6%. The remainder of the Company's debt bears interest at variable rates with a weighted average maturity of approximately 2.6 years and a weighted average interest rate of approximately 7.8% at December 31, 1997. At December 31, 1997, the Company's Community Center Joint Ventures had fixed rate debt aggregating approximately $322.5 million; the OSTRS joint venture had variable rate debt aggregating $24.2 million; the Company's joint venture in San Antonio, Texas had fixed rate debt aggregating $28.6 million and the Liberty Fair joint venture had fixed rate debt aggregating $13.8 million. The Company intends to utilize variable rate indebtedness available under its revolving credit facilities in order to initially fund future acquisitions, developments and expansions of shopping centers. Thus, to the extent that the Company incurs additional variable rate indebtedness, its exposure to increases in interest rates in an inflationary period would increase. The Company believes, however, that in no event would increases in interest expense as a result of inflation significantly impact the Company's distributable cash flow. The Company intends to continuously monitor and actively manage interest costs on its variable rate debt portfolio and may enter into swap positions based on market fluctuations. In addition, the Company believes that it has the ability to obtain funds through additional equity and/or debt offerings, including the issuance of medium term notes. Accordingly, the cost of obtaining such protection agreements in relation to the Company's access to capital markets will continue to be evaluated. ECONOMIC CONDITIONS Historically, real estate has been subject to a wide range of cyclical economic conditions which affect various real estate sectors and geographic regions with differing intensities and at different times. Adverse changes in general or local economic conditions could result in the inability of some existing tenants of the Company to meet their lease obligations and could otherwise adversely affect the Company's ability to attract or retain tenants. The shopping centers are typically anchored by discount department stores (usually Wal-Mart, Kmart, Target, or JCPenney), supermarkets and drug stores which usually offer day-to-day necessities, rather than high-priced luxury items. Since these merchants typically perform better in an economic recession than those who market high priced luxury items, the percentage rents received by the Company have remained relatively stable. In addition, the Company seeks to reduce its operating and leasing risks through ownership of a portfolio of properties with a diverse geographic and tenant base. During 1997 and 1996, certain national and regional retailers have experienced financial difficulties and several have filed for protection under bankruptcy laws. Although the Company has experienced an increase in the number of tenants filing for protection under bankruptcy laws, no significant bankruptcies have occurred through February 24, 1998 with regard to the Company's portfolio of tenants. The Company has assessed the Year 2000 Issue and does not believe that it will have a material affect on future financial results, or cause reported financial information not to be necessarily indicative of future operating results or future financial condition. The Company will continue to review, on an ongoing basis, the need for disclosures concerning this issue. -32- 33 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is included in a separate section at the end of this report. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -33- 34 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 is incorporated by reference to the information under the headings "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" contained in the Company's Proxy Statement in connection with its annual meeting of shareholders to be held on May 11, 1998, and the information under the heading "Executive Officers" in Part I of this Annual Report on Form 10-K. Item 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the "Executive Compensation" section of the Company's Proxy Statement in connection with its annual meeting of shareholders to be held on May 11, 1998. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to the "Security Ownership of Certain Beneficial Owners and Management" section of the Company's Proxy Statement in connection with its annual meeting of shareholders to be held on May 11, 1998. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to the "Certain Transactions" section of the Company's Proxy Statement in connection with its annual meeting of shareholders to be held on May 11, 1998. -34- 35 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K a) Financial Statements The following documents are filed as part of this report: Report of Independent Accountants - Developers Diversified Realty Corporation Consolidated Balance Sheets as of December 31, 1997 and 1996. Consolidated Statements of Operations for the three years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Shareholders Equity for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. Notes to Financial Statements b) Reports on Form 8-K were filed on January 13, June 18, June 19 and November 7, 1997 in which information regarding Items 5 and 7 of Form 8-K was reported. c) Exhibits The following exhibits are filed as part of, or incorporated by reference into, this Report: -35- 36
Exhibit No. Filed Herewith or Under Reg. S-K Form 10-K Incorporated Herein by Item 601 Exhibit No. Description Reference ---------- ----------- ----------- --------- 2 2.1 Agreement of Purchase and Current Report on Form 8-K Sale, dated July 2, 1996, (Filed with the SEC on January between the Company and 14, 1997) Opus Corporation for Maple Grove Crossing Shopping Center 2 2.2 Agreement of Purchase and Current Report on Form 8-K Sale, dated July 2, 1996, (Filed with the SEC on January between the Company and 14, 1997) Opus North Corporation for Highland Grove Shopping Center 2 2.3 Agreement of Purchase and Current Report on Form 8-K Sale, dated July 2, 1996, (Filed with the SEC on January between the Company and 14, 1997) Opus South Corporation for Eastchase Market Shopping Center 2 2.4 Agreement of Purchase and Current Report on Form 8-K Sale, dated July 2, 1996, (Filed with the SEC on January between the Company and 14, 1997) Opus Northwest, L.L.C. for Tanasbourne Town Center Phase I Shopping Center 2 2.5 Agreement of Purchase and Current Report on Form 8-K Sale, dated July 2, 1996, (Filed with the SEC on January between the Company and 14, 1997) Opus Southwest Corporation for Arrowhead Crossing Shopping Center 3 3.1 Amended and Restated Form S-11 Registration No. Articles of Incorporation 33-54930 (Filed with SEC on of the Company November 23, 1992; see Exhibit 3.1 therein)
-36- 37
Exhibit No. Filed Herewith or Under Reg. S-K Form 10-K Incorporated Herein by Item 601 Exhibit No. Description Reference ---------- ----------- ----------- --------- 3 3.2 Amendments to Amended and Annual Report on Form 10-K Restated Articles of (Filed with the SEC on March Incorporation of the Company 30, 1996) 3 3.3 Amendment to Amended and Current Report on Form 8-K Restated Articles of (Filed with the SEC on January Incorporation 14, 1997) 3 3.4 Amendment to Amended and Current Report on Form 8-K Restated Articles of (Filed with the SEC on June Incorporation of the Company 18, 1997) 3 3.5 Code of Regulations of the Form S-11 Registration No. Company 33-54930 (Filed with the SEC on November 23, 1992; see Exhibit 3.2 therein) 3 3.6 Amendment to Code of Annual Report on Form 10-K Regulations of the Company (Filed with the SEC on March 30, 1996) 3 3.7 Amendment to Code of Current Report on Form 8-K Regulations of the Company (Filed with the SEC on January 14, 1997) 4 4.1 Specimen Certificate for Form S-11 Registration No. Common Shares 33-54930 (Filed with the SEC on November 23, 1992; see Exhibit 4.1 therein) 4 4.2 Specimen Certificate for Annual Report on Form 10-K Depositary Shares Relating (Filed with the SEC on March to 9.5% Class A Cumulative 30, 1996) Redeemable Preferred Shares 4 4.3 Specimen Certificate for Annual Report on Form 10-K 9.5% Class A Cumulative (Filed with the SEC on March Redeemable Preferred Shares 30, 1996) 4 4.4 Specimen Certificate for Annual Report on Form 10-K Depositary Shares Relating (Filed with the SEC on March to 9.44% Class B Cumulative 30, 1996) Redeemable Preferred Shares
-37- 38
Exhibit No. Filed Herewith or Under Reg. S-K Form 10-K Incorporated Herein by Item 601 Exhibit No. Description Reference ---------- ----------- ----------- --------- 4 4.5 Specimen Certificate for Annual Report on Form 10-K 9.44% Class B Cumulative (Filed with the SEC on March Redeemable Preferred Shares 30, 1996) 4 4.6 Credit Agreement dated as Form 10-QA (Filed with the SEC of May 1, 1995 among the on May 16, 1995; See Exhibit Company, the First National 4.2 therein) Bank of Chicago and the First National Bank of Boston. 4 4.7 Form of Indemnification Form S-11 Registration Agreement No. 33-54930 (Filed with the SEC on November 23, 1992; see Exhibit 4.2 therein) 4 4.8 Indenture dated as of May Current Report on Form 8-K 1, 1994 by and between the (Filed with the SEC on May Company and Chemical 27, 1994) Bank, as Trustee 4 4.9 Indenture dated as of May Current Report on Form 8-K 1, 1994 by and between the (Filed with the SEC on Company and National City December 5, 1994) Bank, as Trustee (the "NCB Indenture") 4 4.10 First Supplement to NCB Annual Report on Form 10-K Indenture (Filed with the SEC on March 30, 1996) 4 4.11 Specimen 7% Convertible Annual Report on Form 10-K Subordinated Debentures due (Filed with the SEC on April 1999 1, 1995) 4 4.12 Specimen Senior Note due Annual Report on Form 10-K 2000 (Filed with the SEC on March 30, 1996) 4 4.13 Building and Loan Agreement Annual Report on Form 10-K dated as of November 17, (Filed with the SEC on March 1995 among Community Center 30, 1996) Two L.L.C. and certain other parties named therein
-38- 39
Exhibit No. Filed Herewith or Under Reg. S-K Form 10-K Incorporated Herein by Item 601 Exhibit No. Description Reference ---------- ----------- ----------- --------- 4 4.14 Loan Agreement dated as of Annual Report on Form 10-K November 17, 1995 among (Filed with the SEC on March Community Center One L.L.C. 30, 1996) and certain other parties named therein 4 4.15 Amendment dated June 18, Current Report on Form 8-K 1996, to the Credit (Filed with the SEC on January Agreement, dated as of May 14, 1997) 1, 1995, among the Company, the First National Bank of Chicago and the First National Bank of Boston 4 4.16 Revolving Credit Facility, Annual Report on Form 10-K dated as of November 13, (Filed with the SEC on March 1996, among the Company and 31, 1997 National City Bank 4 4.17 Loan Agreement dated as of Current Report on Form 8-K May 15, 1997, between (Filed with the SEC on June Community Centers One 18, 1997 L.L.C., Community Centers Two L.L.C., Shoppers World Community Center, L.P. and Lehman Brothers Holdings Inc., d/b/a/ Lehman Capital, a Division of Lehman Brothers Holdings, Inc. 4 4.18 Amended and Restated Current Report on Form 8-K Promissory Note, dated as (Filed with the SEC on June of May 15, 1997, between 18, 1997 Community Centers Two L.L.C. and Shoppers World Community Center L.P. and Lehman Brothers Holdings Inc., d/b/a/ Lehman Capital, a Division of Lehman Brothers Holdings, Inc.
-39- 40
Exhibit No. Filed Herewith or Under Reg. S-K Form 10-K Incorporated Herein by Item 601 Exhibit No. Description Reference ---------- ----------- ----------- --------- 4 4.19 Amended and Restated Current Report on Form 8-K Promissory Note, dated as (Filed with the SEC on June of May 15, 1997, between 18, 1997 Community Centers One L.L.C. and Lehman Brothers Holdings Inc., d/b/a/ Lehman Capital, a Division of Lehman Brothers Holdings, Inc. 4 4.20 Amended and Restated Current Report on Form 8-K Promissory Note, dated as (Filed with the SEC on June of May 15, 1997, between 18, 1997 Community Centers One L.L.C. and Lehman Brothers Holdings Inc., d/b/a/ Lehman Capital, a Division of Lehman Brothers Holdings, Inc. 4 4.21 Second Amendment, dated Quarterly Report on March 31, 1997, to the Form 10-Q (Filed with the Credit Agreement, dated SEC on May 15, 1997) as of May 1, 1995, among the Company, the First National Bank of Chicago and the First National Bank of Boston 4 4.22 Amended and Restated Credit Exhibit 4.22 filed herewith Agreement, dated as of February 24, 1998, among the Company and The First National Bank of Chicago 4 4.23 Form of Fixed Rate Senior Current Report on Form 8-K Medium-Term Note (Filed with the SEC on November 7, 1997) 4 4.24 Form of Floating Rate Current Report on Form 8-K Senior Medium-Term Note (Filed with the SEC on November 7, 1997) 4 4.25 Form of Fixed Rate Current Report on Form 8-K Subordinated Medium-Term (Filed with the SEC on Note November 7, 1997) 4 4.26 Form of Floating Rate Current Report on Form 8-K Subordinated Medium-Term (Filed with the SEC on Note November 7, 1997) 10 10.1 Registration Rights Form S-11 Registration No. Agreement 33-54930 (Filed with the SEC on November 23, 1992; see Exhibit 10.1 therein) 10 10.2 Stock Option Plan Form S-8 Registration No. 33-74562 (Filed with the SEC on January 28, 1994; see Exhibit 4(a) therein) 10 10.3 Employment Agreement Form S-11 Registration between the Company and No. 33-54930 (Filed with the Scott A. Wolstein SEC on November 23, 1992; see Exhibit 10.3 therein)
-40- 41
Exhibit No. Filed Herewith or Under Reg. S-K Form 10-K Incorporated Herein by Item 601 Exhibit No. Description Reference ---------- ----------- ----------- --------- 10 10.4 Employment Agreement Form S-11 Registration No. between the Company and 33-54930 (Filed with the SEC James A. Schoff on November 23, 1992; see Exhibit 10.4 therein) 10 10.5 Limited Partnership Annual Report on Form 10-K Agreement dated as of (Filed with the SEC on March November 16, 1995 among DD 30, 1996) Community Centers Three, Inc. and certain other parties named therein 10 10.6 Amended and Restated Annual Report on Form 10-K Limited Liability Company (Filed with the SEC on March Agreement dated as of 30, 1996) November 17, 1995 among DD Community Centers One, Inc. and certain other parties named therein 10 10.7 Amended and Restated Annual Report on Form 10-K Limited Liability Company (Filed with the SEC on March Agreement dated as of 30, 1996) November 17, 1995 among DD Community Centers Two, Inc. and certain other parties named therein 10 10.8 Limited Liability Company Annual Report on Form 10-K Agreement dated as of (Filed with the SEC on March November 17, 1995 among the 30, 1996) Company and certain other parties named therein 10 10.9 Purchase and Sale Agreement Annual Report on Form 10-K dated as of October 16, (Filed with the SEC on March 1995 among the Company and 30, 1996) certain other parties named therein
-41- 42
Exhibit No. Filed Herewith or Under Reg. S-K Form 10-K Incorporated Herein by Item 601 Exhibit No. Description Reference ---------- ----------- ----------- --------- 10 10.10 Directors' Deferred Annual Report on Form 10-K Compensation Plan (Filed with the SEC on April 1, 1995) 10 10.11 Elective Deferred Annual Report on Form 10-K Compensation Plan (Filed with the SEC on April 1, 1995) 10 10.12 Developers Diversified Current Report on Form 8-K Realty Corporation (Filed with the SEC on January Equity-Based Award Plan 14, 1997) 10 10.13 Restricted Shares Current Report on Form 8-K Agreement, dated July 17, (Filed with the SEC on June 1996, between the Company 18, 1997) and Scott A. Wolstein. 10 10.14 Performance Units Current Report on Form 8-K Agreement, dated July 17, (Filed with the SEC on June 1996, between the Company 18, 1997) and Scott A. Wolstein. 10 10.15 Program Agreement for Exhibit 10.15 filed herewith Retail Value Investment Program, dated as of February 11, 1998, among Retail Value Management, Ltd., the Company and The Prudential Insurance Company of America 10 10.16 Share Option Agreement, Exhibit 10.16 filed herewith dated April 15, 1997, between the Company and Scott A. Wolstein 10 10.17 Share Option Agreement, Exhibit 10.17 filed herewith dated May 12, 1997, between the Company and Scott A. Wolstein 12 12.1 Computation of Ratio of Form S-3 Registration No. Earnings to Fixed Charges 33-94182 (Filed with the SEC on June 30, 1995; see Exhibit 12 therein) 22 22.1 List of subsidiaries Exhibit 21.1 filed herewith 23 23.1 Consent of Price Waterhouse Exhibit 23.1 filed herewith
-42- 43 SIGNATURES --------------------------------------------------------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DEVELOPERS DIVERSIFIED REALTY CORPORATION By: /s/ Scott A. Wolstein --------------------------------------- Scott A. Wolstein, Chairman, President and Chief Executive Officer Date: March 31, 1998 --------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 31st day of March, 1998. /s/ Scott A. Wolstein Chairman, President, Chief Executive Officer - --------------------------- and Director Scott A. Wolstein (principal executive officer) /s/ James A. Schoff Executive Vice President, Chief Operating - --------------------------- Officer and Director James A. Schoff /s/ William H. Schafer Vice President and Chief Financial Officer - --------------------------- (principal financial and accounting officer) William H. Schafer /s/ William N. Hulett III Director - --------------------------- William N. Hulett III /s/ Walter H. Teninga Director - ---------------------------- Walter H. Teninga /s/ Albert T. Adams Director - ---------------------------- Albert T. Adams /s/ Ethan Penner Director - ----------------------------- Ethan Penner /s/ Dean S. Adler Director - ------------------------------ Dean S. Adler -43- 44 INDEX TO FINANCIAL STATEMENTS DEVELOPERS DIVERSIFIED REALTY CORPORATION
Page Financial Statements: ------ Report of Independent Accountants ..................................... F-2 Consolidated Balance Sheets at December 31, 1997 and 1996 ............. F-3 Consolidated Statements of Operations for the three years ended December 31, 1997 .................................................. F-4 Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1997 ...................................... F-5 Consolidated Statements of Cash Flows for the three years ended December 31, 1997 .................................................. F-6 Notes to Consolidated Financial Statements ............................ F-7 Financial Statement Schedules: II - Valuation and Qualifying Accounts and reserves for the three years ended December 31, 1997 ...................... F-21 III - Real Estate and Accumulated Depreciation at December 31, 1997 ........................................ F-22
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. F-1 45 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Developers Diversified Realty Corporation In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Developers Diversified Realty Corporation ("Company") and its subsidiaries at Decembers 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Cleveland, Ohio February 12, 1998 F-2 46
CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) December 31, ASSETS 1997 1996 Real estate rental property: ------------ -------------- Land $ 183,809 $ 122,696 Land under development 23,668 27,305 Construction in progress 28,130 28,364 Buildings 1,071,717 798,477 Fixtures and tenant improvements 18,418 14,805 ------------ -------------- 1,325,742 991,647 Less accumulated depreciation (171,737) (142,039) ------------ -------------- Real estate, net 1,154,005 849,608 Other real estate investments 72,149 -- Cash and cash equivalents 18 13 Accounts receivable, net 16,282 11,439 Notes receivable 4,081 -- Advances to and investments in joint ventures 136,267 106,796 Deferred charges, net 4,668 4,296 Other assets 4,448 2,974 ------------ -------------- $ 1,391,918 $ 975,126 ============ ============== LIABILITIES AND SHAREHOLDERS' EQUITY Unsecured indebtedness: Fixed rate senior notes $ 392,254 $ 215,493 Revolving credit facilities 139,700 95,500 Subordinated convertible debentures 46,891 60,000 ------------ -------------- 578,845 370,993 Mortgage indebtedness 89,676 107,439 ------------ -------------- Total indebtedness 668,521 478,432 Accounts payable and accrued expenses 28,601 20,921 Other liabilities 9,100 6,437 Minority equity interest 16,293 -- Operating partnership minority interests 353 -- ------------ -------------- Total liabilities and minority interests 722,868 505,790 ------------ -------------- Commitments and contingencies (Note 14) Shareholders' equity: Class A 9.5% cumulative redeemable preferred shares, without par value, $250 liquidation value; 1,500,000 shares authorized; 421,500 shares issued and outstanding at December 31, 1997 and 1996 105,375 105,375 Class B 9.44% cumulative redeemable preferred shares, without par value, $250 liquidation value; 1,500,000 shares authorized; 177,500 shares issued and outstanding at December 31, 1997 and 1996 44,375 44,375 Common shares, without par value, $.10 stated value; 50,000,000 shares authorized; 27,687,576 and 21,682,917 shares issued and outstanding at December 31, 1997 and 1996, respectively 2,769 2,168 Paid-in-capital 580,509 369,417 Accumulated dividends in excess of net income (63,517) (51,384) ------------ -------------- 669,511 469,951 Less: Unearned compensation - restricted stock (461) (615) ------------ -------------- 669,050 469,336 ------------ -------------- $ 1,391,918 $ 975,126 ============ ==============
The accompanying notes are an integral part of these financial statements F-3 47 CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)
Year Ended December 31, 1997 1996 1995 -------- --------- --------- Revenues from operations: Minimum rents $123,998 $ 96,285 $ 82,722 Percentage and overage rents 2,343 1,862 1,663 Recoveries from tenants 32,377 24,128 19,255 Management fee income 2,914 2,632 556 Other 7,408 5,998 3,609 -------- --------- --------- 169,040 130,905 107,805 -------- --------- --------- Rental operation expenses: Operating and maintenance 15,961 12,399 9,253 Real estate taxes 20,001 14,589 12,593 General and administrative 11,055 8,135 6,223 Interest 35,558 29,888 29,595 Depreciation and amortization 32,313 25,062 21,865 -------- --------- --------- 114,888 90,073 79,529 -------- --------- --------- Income before equity in net income of joint ventures, gain on sales of real estate, allocation to minority interests and extraordinary item 54,152 40,832 28,276 Equity in net income of joint ventures 10,893 8,710 486 Gain on sales of real estate 3,526 - 300 -------- --------- --------- Income before allocation to minority interests and extraordinary item 68,571 49,542 29,062 Income allocated to minority interests (1,049) - - Extraordinary item - extinguishment of debt-deferred finance costs written off - - (3,557) -------- --------- --------- Net income $ 67,522 $ 49,542 $ 25,505 -------- --------- --------- Net income applicable to common shareholders $ 53,322 $ 35,342 $ 24,250 ======== ========= ========= Per share data: Earnings per common share - basic: Income before extraordinary item $2.06 $1.67 $1.48 Extraordinary item - - (0.19) -------- --------- --------- Net income $2.06 $1.67 $1.29 ======== ========= ========= Earnings per common share - diluted: Income before extraordinary item $2.05 $1.67 $1.47 Extraordinary item - - (0.19) -------- --------- --------- Net income $2.05 $1.67 $1.28 ======== ========= =========
The accompanying notes are an integral part of these financial statements F-4 48
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except per share amounts) Class A Class B Common Preferred Preferred Shares Accumulated Unearned Shares ($250 Shares (250 ($.10 Dividends in Compensation- stated stated stated Paid-in Excess of Restricted value) value) value) Capital Net Income Stock Total -------------------------------------------------------------------------------------- Balance, December 31, 1994 $ -- $ -- $ 1,608 $ 220,608 $ (18,708) $ -- $ 203,508 Issuance of 15,850 common shares for cash related to exercise of stock options, employee 401(k) plan and dividend reinvestment plan -- -- 1 367 -- -- 368 Issuance of 2,875,000 common shares for cash - underwritten offering -- -- 288 76,219 -- -- 76,507 Issuance of 421,500 Class A preferred shares for cash - underwritten offering 105,375 -- -- (3,884) -- -- 101,491 Issuance of 160,000 Class B preferred shares for cash - underwritten offering -- 40,000 -- (1,467) -- -- 38,533 Net income -- -- -- -- 25,505 -- 25,505 Dividends declared - common shares -- -- -- -- (40,959) -- (40,959) Dividends declared - preferred shares -- -- -- -- (792) -- (792) ------------------------------------------------------------------------------------ Balance, December 31, 1995 105,375 40,000 1,897 291,843 (34,954) -- 404,161 Issuance of 77,474 common shares for cash related to exercise of stock options, employee 401(k) plan and dividend reinvestment plan -- -- 7 1,873 -- -- 1,880 Issuance of 25,000 common shares related to restricted stock plan (5,000 vested in 1996) -- -- 3 766 -- (615) 154 Issuance of 2,611,500 common shares for cash - underwritten offering -- -- 261 75,128 -- -- 75,389 Issuance of 17,500 Class B preferred shares for cash - underwritten offering -- 4,375 -- (193) -- -- 4,182 Net income -- -- -- -- 49,542 -- 49,542 Dividends declared - common shares -- -- -- -- (51,889) -- (51,889) Dividends declared - preferred shares -- -- -- -- (14,083) -- (14,083) ------------------------------------------------------------------------------------ Balance, December 31, 1996 105,375 44,375 2,168 369,417 (51,384) (615) 469,336 Issuance of 137,145 common shares for cash related to exercise of stock options, employee 401(k) plan and dividend reinvestment plan -- -- 14 3,495 -- -- 3,509 Issuance of 5,474,760 common shares for cash - underwritten offerings -- -- 548 194,713 -- -- 195,261 Vesting of restricted stock -- -- -- -- -- 154 154 Conversion of debentures into 392,754 common shares -- -- 39 12,884 -- -- 12,923 Net income -- -- -- -- 67,522 -- 67,522 Dividends declared - common shares -- -- -- -- (65,455) -- (65,455) Dividends declared - preferred shares -- -- -- -- (14,200) -- (14,200) ------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1997 $ 105,375 $ 44,375 $ 2,769 $ 580,509 $ (63,517) $ (461) $ 669,050 ========= ========= ========= ========= ========= =========== =========
The accompanying notes are an integral part of these financial statements F-5 49
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Year Ended December 31, 1997 1996 1995 ----------------------------------- Cash flow operating activities: Net income $ 67,522 $ 49,542 $ 25,505 Adjustments to reconcile net income to net cash flow provided by operating activities: Depreciation and amortization 32,313 25,062 21,865 Amortization of deferred finance costs 1,399 1,686 1,749 Write-off of deferred finance costs -- -- 3,513 Equity in net income of joint ventures (10,893) (8,710) (486) Cash distributions from joint ventures 10,185 8,646 -- Gain on sales of real estate (3,526) -- (300) Net change in accounts receivable (4,907) (4,478) (2,835) Net change in accounts payable and accrued expenses 1,369 1,061 2,699 Net change in other operating assets and liabilities 921 3,011 (2,671) --------- --------- --------- Total adjustments 26,861 26,278 23,534 --------- --------- --------- Net cash flow provided by operating activities 94,383 75,820 49,039 --------- --------- --------- Cash flow from investing activities: Real estate developed or acquired (391,798) (185,667) (149,096) Equity contributions to joint ventures (8,093) (14,870) (74,277) Repayments from (advances to) joint ventures, net (22,085) (855) 283 Issuance of notes receivable (4,081) -- -- Proceeds from sale of real estate 9,837 1,722 5,892 --------- --------- --------- Net cash flow used for investing activities (416,220) (199,670) (217,198) --------- --------- --------- Cash flow from financing activities: Proceeds from (repayment of) revolving credit facilities, net 44,200 26,600 (2,138) Repayment of Floating Rate Senior Notes -- -- (100,000) Repayment of construction loans -- -- (14,682) Principal payments on rental property debt (17,764) (32,204) (9,291) Proceeds from construction loans -- 2,924 17,938 Proceeds from issuance of Medium Term Notes, net of underwriting commissions and $200, $300 and $30 of offering expenses paid in 1997, 1996 and 1995, respectively 101,234 110,898 3,968 Proceeds from issuance of Fixed Rate Senior Notes, net of underwriting commissions and discounts and $500 and $400 of offering expenses paid in 1997 and 1995, respectively 74,147 -- 98,543 Proceeds from call premium of Fixed Rate Senior Notes 1,430 -- -- Payment of deferred finance costs (bank borrowings) (674) -- (2,233) Proceeds from issuance of common shares, net of underwriting commissions and $900, $300 and $400 of offering expenses paid in 1997, 1996 and 1995, respectively 195,261 75,389 76,506 Proceeds from issuance of Class A preferred shares, net of underwriting commissions and $500 of offering expenses paid -- -- 101,491 Proceeds from issuance of Class B preferred shares, net of underwriting commissions and $200 of offering expenses paid in 1996 and 1995 -- 4,182 38,533 Proceeds from issuance of common shares in conjunction with exercise of stock options, 401(k) plan and dividend reinvestment plan 3,663 2,034 368 Dividends paid (79,655) (65,972) (41,751) --------- --------- --------- Net cash provided by financing activities 321,842 123,851 167,252 --------- --------- --------- Increase (decrease) in cash and cash equivalents 5 1 (907) Cash and cash equivalents, beginning of year 13 12 919 --------- --------- --------- Cash and cash equivalents, end of year $ 18 $ 13 $ 12 ========= ========= =========
The accompanying notes are an integral part of these financial statements F-6 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------- NATURE OF BUSINESS Developers Diversified Realty Corporation, subsidiaries and related real estate joint ventures (the "Company" or "DDR") are engaged in the business of acquiring, expanding, owning, developing, managing and operating neighborhood and community shopping centers, enclosed malls and business centers. The Company's centers are typically anchored by discount department stores (usually Wal-Mart, Kmart, Target or JCPenney), supermarkets and drug stores which usually offer day-to-day necessities. The tenant base includes primarily national and regional retail chains and local retailers, consequently, the Company's credit risk is concentrated in the retail industry. Revenues derived from the Company's two largest tenants, Wal-Mart and Kmart, aggregated 12.3%, 15.6% and 19.7% of total revenues, including joint venture revenues, for the years ended December 31, 1997, 1996 and 1995, respectively, as follows:
Year Wal-Mart Kmart ---- -------- ----- 1997 7.1% 5.2% 1996 9.3% 6.3% 1995 12.3% 7.4%
The total percentage of Company owned gross leasable area, including joint venture gross leasable area, attributed to Wal-Mart and Kmart was 11.4% and 9.7%, respectively, at December 31, 1997. The Company's ten largest tenants comprised 25.6%, 32.2% and 34.0% of total revenues for the years ended December 31, 1997, 1996 and 1995, respectively. Management believes the Company's portfolio is diversified in terms of location of its shopping centers and its tenant profile. Adverse changes, in general or local economic conditions, could result in the inability of some existing tenants to meet their lease obligations and could otherwise adversely affect the Company's ability to attract or retain tenants. During 1997 and 1996, certain national and regional retailers experienced financial difficulties and several filed for protection under bankruptcy laws. Although the Company has experienced an increase in the number of tenants filing for protection under bankruptcy laws, no significant bankruptcies have occurred affecting the Company's portfolio of tenants. PRINCIPLES OF CONSOLIDATION All majority owned subsidiaries are included in the consolidated financial statements and all significant intercompany balances and transactions have been eliminated in consolidation. At December 31, 1997, the Company owned, through various joint ventures and limited liability corporations, a 50% interest in 13 operating shopping centers (13 in 1996 and 11 in 1995) and a 35% interest in one shopping center which was acquired in 1997. These investments are presented using the equity method of accounting and are discussed in Note 2. STATEMENT OF CASH FLOWS AND SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING INFORMATION The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Non-cash investing and financing activities are summarized as follows (in millions):
For the year ended December 31, 1997 1996 1995 ------ ----- ----- Conversion of debentures and related deferred finance costs $ 12.9 $ -- $ -- Issuance of minority interest and operating partnership units relating to shopping center acquisitions 16.6 -- -- Contribution of net assets to joint ventures 0.5 5.2 -- Mortgages assumed, shopping center acquisitions -- -- 15.7 Other liabilities assumed, shopping center acquisitions 6.2 1.1 0.8 Accounts payable related to construction in progress 0.2 5.3 2.8 Note receivable exchanged in partial consideration of property acquisition -- -- 1.9
The foregoing transactions did not provide or use cash and, accordingly, they are not reflected in the statements of cash flows. REAL ESTATE Real estate assets are stated at cost less accumulated depreciation, which, in the opinion of management, is not in excess of the individual property's estimated undiscounted future cash flows, including estimated proceeds from disposition. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets as follows: - ---------------------------------------------------------------- Buildings 18 to 31 years - --------------------------- ---------------------------------- Furniture / Fixtures and Useful lives, which approximate Tenant Improvements lease terms, where applicable - -------------------------- ---------------------------------- Depreciation expense was $32.3 million, $25.1 million and $21.9 million for the years ended December 31, 1997, 1996 and 1995, respectively. Expenditures for maintenance and repairs are charged to operations as incurred. Renovations which improve or extend the life of the asset are capitalized. Included in land at December 31, 1997 was undeveloped real estate, generally outlots or expansion pads adjacent to the shopping centers and enclosed malls owned by the Company (excluding shopping centers owned through joint ventures)which aggregated approximately 167 acres at 65 sites. F-7 51 Construction in progress includes shopping center developments and significant expansions and re-developments. The Company capitalizes interest on funds used for the construction or expansion of shopping centers. Capitalization of interest ceases when construction activities are completed and the property is available for occupancy by tenants. For the years ended December 31, 1997, 1996 and 1995, the Company capitalized interest of $4.0 million, $3.3 million, and $2.5 million, respectively. In addition, the Company capitalized certain construction administration costs of $1.3 million, $1.1 million and $0.6 million in 1997, 1996 and 1995, respectively. DEFERRED FINANCING COSTS Costs incurred in obtaining long-term financing are included in deferred charges in the accompanying balance sheets and are amortized over the terms of the related debt agreements; such amortization is reflected as interest expense in the consolidated statements of operations. REVENUE RECOGNITION Minimum rents from tenants are recognized monthly using the straight-line method. Percentage and overage rents are recognized after the tenants reported sales have exceeded the applicable sales breakpoint. Revenues associated with tenant reimbursements are recognized in the period in which the expenses are incurred based upon the provision of tenant leases. Lease termination fees are included in other income and recognized upon termination of a tenant's lease, which generally coincides with the receipt of cash. ACCOUNTS RECEIVABLE Accounts receivable, other than straight-line rents receivable, are expected to be collected within one year and are net of estimated unrecoverable amounts of approximately $2.4 million and $1.8 million at December 31, 1997 and 1996, respectively. At December 31, 1997 and 1996 straight-line rent receivables, net of a provision for uncollectible amounts, aggregated $2.8 million and $0.8 million, respectively. GAIN ON SALES OF REAL ESTATE Gain on sales of real estate generally relates to the sale of outlots and land adjacent to existing shopping centers and are recognized at closing when the earnings process is deemed to be complete. During 1997, the Company sold two business centers and a shopping center and recognized an aggregate gain of $3.5 million. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses include internal leasing and legal salaries and related expenses which are charged to operations as incurred. All internal personnel costs associated with the acquisition of real estate are expensed as incurred. INTEREST AND REAL ESTATE TAXES Interest and real estate taxes incurred during the construction period are capitalized and depreciated over the life of the building. Interest paid during the years ended December 31, 1997, 1996 and 1995 aggregated $36.2 million, $31.2 million and $29.6 million, respectively. FEDERAL INCOME TAXES The Company has elected to be taxed as a qualified Real Estate Investment Trust ("REIT") under the Internal Revenue Code of 1986, as amended. As a REIT, the Company is entitled to a tax deduction for the amount of dividends paid its shareholders, thereby effectively subjecting the distributed net income of the Company to taxation at the shareholder level only, provided it distributes at least 95% of its taxable income and meets certain other REIT qualification requirements. As the Company distributed sufficient taxable income for the years ended December 31, 1997, 1996 and 1995, no U.S. Federal income or excise taxes were incurred. The tax basis of assets and liabilities exceeds the amounts reported in the accompanying financial statements by approximately $111 million, $108 million and $104 million at December 31, 1997, 1996 and 1995, respectively. NEW ACCOUNTING STANDARDS Effective December 31, 1997, the Company implemented Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings per Share (See Note 17). RECLASSIFICATIONS Certain reclassifications have been made to the 1996 and 1995 financial statements to conform to the 1997 presentation. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. F-8 52 2. EQUITY INVESTMENTS IN JOINT VENTURES - --------------------------------------- The Company's equity investments in joint ventures at December 31, 1997 was comprised of (i) a 50% joint venture interest in each of four joint ventures (collectively, the "Community Center Joint Ventures") comprised of ten shopping center properties (aggregating approximately 4.0 million square feet) and several outparcels, formed in November 1995; (ii) a 50% joint venture interest, formed in September 1996, with the Ohio State Teachers Retirement System (OSTRS) relating to two shopping center properties aggregating approximately 0.5 million square feet; (iii) a 50% joint venture interest, formed in October 1996, in conjunction with the development of a shopping center in Merriam, KS, aggregating approximately 0.4 million square feet; (iv) a 50% joint venture interest in a partnership that owns a 0.4 million square foot shopping center located in Martinsville, VA, which was formed in January 1993 and (v) a 35% joint venture interest in a limited partnership that owns a 0.3 million square foot shopping center located in San Antonio, TX, which was formed in January 1997. Combined condensed financial information of the Company's joint venture investments is summarized as follows (in thousands):
COMBINED BALANCE SHEETS December 31, 1997 1996 -------- -------- Real estate, net $623,993 $561,625 Other assets 25,817 16,012 -------- -------- $649,810 $577,637 ======== ======== Mortgage debt $389,160 $360,114 Amounts payable to DDR 32,667 10,747 Other liabilities 9,549 7,782 -------- -------- 431,376 378,643 Accumulated equity 218,434 198,994 -------- -------- $649,810 $577,637 ======== ========
COMBINED STATEMENTS OF OPERATIONS For the years ended December 31, 1997 1996 1995 -------- -------- -------- Revenues from operations $ 82,434 $ 63,681 $ 9,356 -------- -------- -------- Rental operation expenses 20,189 16,192 2,377 Depreciation and amortization expense 11,658 8,924 1,755 Interest expense 29,540 21,146 4,252 -------- -------- -------- 61,387 46,262 8,384 -------- -------- -------- Income before gain on sale of land 21,047 17,419 972 Gain on sale of land 1,085 -- -- -------- -------- -------- Net income $ 22,132 $ 17,419 $ 972 ======== ======== ========
At December 31, 1997 and 1996, advances to and investments in joint ventures include acquisition, transaction and other capitalizable costs, including interest, related to the Community Center Joint Ventures of approximately $1.5 million and $2.7 million, respectively, and the Merriam joint venture of approximately $1.4 million and $0.7 million, respectively. At December 31, 1997 and 1996, deferred development fees of approximately $1.0 million and a deferred gain of approximately $5.9 million related to the contribution of property upon formation of the OSTRS joint venture. In addition, the Company capitalized interest of $0.5 million in 1997 and none in 1996 associated with its investment in the Merriam joint venture which has been under construction since its formation. The Company provides property management services to the joint ventures. Included in management fee income is $2.7 million, $2.1 million and $0.2 million for the years ended December 31, 1997, 1996 and 1995, respectively, related to these services. Other income includes development fee income from the joint ventures of $0.6 million, $0.7 million and $0.5 million in 1997, 1996 and 1995, respectively. Cash distributions are made from the joint ventures to the extent that "net cash flows", as defined in the joint venture agreements, are generated. During 1997, 1996 and 1995, the joint ventures distributed an aggregate of $10.2 million, $8.6 million and $0.2 million, respectively, to its joint venture partners. On November 17, 1995, the Company, in conjunction with certain joint venture partners described below, acquired the Homart Community Center Division of Sears from an affiliate of General Growth Properties, Inc. General Growth Properties, Inc. had contracted to purchase the Homart Community Center Division as part of its acquisition of Homart Development Co., a subsidiary of Sears. The Homart Community Center Division included ten power centers, aggregating in excess of four million square feet of Gross Leaseable Area ("GLA"), located in major metropolitan areas throughout the United States and several outlots and pad sites adjacent to the ten power centers and certain F-9 53 other power centers previously sold by Sears (the "Community Center Properties"). At the date of acquisition, construction of seven of the ten power centers was complete or substantially complete and three of the power centers were under construction. Construction of the three centers was substantially completed during 1997 and 1996. The Community Center Properties are owned by the Community Center Joint Ventures. The Company, or a wholly owned subsidiary of the Company, and its joint venture partners each purchased a 50% interest in each Community Center Joint Venture. The Company's joint venture partners are a consortium of third party investors, including a private REIT, owned by institutional investors advised by DRA Advisors, Inc. ("DRA"), three limited partnerships whose respective limited partners are pension funds and whose general partners are affiliates of DRA and one corporation whose owners are affiliates of DRA. In addition to owning a 50% interest in each Community Center Joint Venture, the Company manages the Community Center Properties and related developments pursuant to management and development agreements with each of the Community Center Joint Ventures. The joint venture agreements with DRA include provisions whereby each partner has the right to trigger a purchase or sale of its interest in the joint ventures (Reciprocal Purchase Rights) or to initiate a purchase and sale of the properties (Property Purchase Rights). These rights become effective after November 17, 1999 or if either party is in default of the joint venture agreements. In addition, at any time after November 17, 1998, the Company's joint venture partners may convert all, or a portion of, their respective interests in such joint ventures into common shares of the Company. The terms of the conversion are set forth in the governing documents of such joint ventures. However, if the joint venture partners elect to convert their respective interest into common shares, the Company will have the sole option to pay cash instead of issuing common shares. If the Company agrees to the issuance of common shares, the agreement provides that the converting joint venture partner will execute a lock-up arrangement acceptable to the Company. In October 1997, the Company advanced $12.5 million to the Community Centers Joint Ventures. The Company's advance is evidenced by a note requiring monthly payments of interest calculated at LIBOR plus 1.1%. Principal is due from capital proceeds, as defined in the joint venture agreement. All outstanding principal and interest is due on the tenth anniversary of the joint venture agreement. The Company recorded interest income of $0.2 million in 1997 relating to this advance. In September 1996, the Company entered into a joint venture with OSTRS. In conjunction with the formation of the joint venture, the Company transferred two shopping centers with a net book value of $41.6 million and non-recourse mortgage debt aggregating $36.4 million in exchange for a 50% interest in the joint venture. At the date of transfer, the contribution made by the Company had a net fair value of $11.6 million and OSTRS funded an initial cash contribution of $11.6 million for its 50% interest. The cash contribution was used to repay a portion of the non-recourse mortgage debt. The Company continues to manage the two properties pursuant to a management agreement. In 1993, the Company advanced $9.0 million to the Martinsville, Virginia joint venture which utilized these funds to repay a portion of its first mortgage debt. The Company's advance is evidenced by a note requiring monthly payments of principal and interest at the rate of 9.25% per annum with a final maturity of 1999. In addition, in 1997 and 1996, the Company had advanced a total of $6.1 million and $1.1 million, respectively, to the joint venture for the construction and re-tenanting of vacant space. The Company's advances are evidenced by notes with interest calculated at prime plus 1% (9.5% at December 31, 1997). In accordance with the joint venture agreement, construction or operating advances must be repaid before any capital distributions can be made. The Company recorded interest income of $1.0 million in 1997 and $0.8 million for each of the years ended December 31, 1996 and 1995, relating to these advances. In October 1996, the Company formed a joint venture with DD Merriam, L.P., which is advised by DRA Advisors, Inc., to develop and manage a shopping center in Merriam, Kansas. This project was one of the development sites acquired in conjunction with the acquisition of the Homart Community Center Division. The joint venture is 50% owned by the Company and 50% owned by DD Merriam, L.P. The Company manages the shopping center and related development pursuant to management and development agreements. At December 31, 1997 and 1996, the Company had advanced $5.8 million and $1.1 million, respectively, to pay for certain construction related costs. The advances accrue interest at 8% per annum and are to be repaid from the proceeds of construction financing, scheduled to close in 1998. Total interest earned by the Company relating to these advances aggregated $0.3 million in 1997 (none in 1996). In January 1997, the Company formed a joint venture with certain institutional investors, which are advised by DRA Advisors, Inc., to acquire a 0.3 million square foot shopping center located in San Antonio, Texas. The aggregate cost of the shopping center, including the assumption of approximately $26.7 million of debt, was approximately $38.3 million of which the Company's proportionate ownership share is 35%. The Company contributed approximately $3.5 million of equity and manages the shopping center pursuant to a management agreement. DRA and the Company each have the right (Reciprocal Purchase Rights) to trigger a purchase or sale of its interest in the Merriam and San Antonio joint ventures after one and three years, respectively, subsequent to the acquisition of each respective property. The Reciprocal Purchase Rights give both Managers the rights, under certain circumstances, to establish a price, following which the other party has the right to purchase the interest of the other party, or sell its interest to the other party, at that price. In addition, any time after two and three years from the date of the San Antonio and Merriam agreements, respectively, DRA may convert all or a portion of its respective interest in each joint venture into common shares of the Company. If DRA elects to convert its respective interest into common shares of the Company, the Company will have the sole option to pay cash instead of issuing common shares. F-10 54 3. Acquisitions and Pro Forma Financial Information - --------------------------------------------------- During the years ended December 31, 1997, 1996 and 1995, the Company completed the acquisition of 22 shopping centers, excluding those acquired through joint ventures as discussed in Note 2, (7 in 1997, 5 in 1996 and 10 in 1995) with an aggregate of 4.9 million Company owned gross leasable square feet (GLA) at a total purchase price of $463.4 million. These acquisitions were accounted for using the purchase method of accounting. These properties are summarized as follows:
Acquisition Effective Date Year Company Center Location of Acquisition Built GLA - --------------------------------- -------------------------------- -------------- ----- --------- 1997 Acquisitions: GREAT NORTHERN PLAZA NORTH &SOUTH CLEVELAND, (NORTH OLMSTED) OH JANUARY, 1997 1958 619,327 FOOTHILLS TOWNE CENTER AHWATUKEE, AZ MARCH, 1997 1996 491,689 EAGAN PROMENADE EAGAN, MN JULY, 1997 1997 243,282 MIDWAY MARKETPLACE ST. PAUL, MN JULY, 1997 1997 313,781 COOKS CORNER BRUNSWICK, ME AUGUST, 1997 1965 290,784 CENTENNIAL PROMENADE DENVER, CO OCTOBER, 1997 1997 336,944 SPRING CREEK CENTRE FAYETTEVILLE, AR NOVEMBER, 1997 1997 139,277 --------- TOTAL 1997 ACQUISITIONS 2,435,084 1996 Acquisitions: ========= Arrowhead Crossing Phoenix (Peoria), AZ July, 1996 1995 346,680 Maple Grove Crossing Minneapolis (Maple Grove), MN July, 1996 1995 250,436 Highland Grove Highland, IN July, 1996 1995 294,115 Eastchase Market Fort Worth, TX July, 1996 1995 205,027 Tanasbourne Town Center Portland, OR August, 1996 1995 151,970 --------- Total 1996 Acquisitions 1,248,228 ========= 1995 ACQUISITIONS: Airport Square Shopping Center Toledo, OH February, 1995 1993 187,674 North Road Plaza Orangeburg, SC March, 1995 1994 22,200 Northtowne Shopping Center Anderson, SC March, 1995 1993 14,250 Wando Crossing Shopping Center Mt. Pleasant, SC March, 1995 1992 205,032 Jacksonville Regional Shopping Center Jacksonville, FL March, 1995 1988 219,073 The Shoppes of Boot Ranch Palm Harbor, FL May, 1995 1990 52,395 East Forest Plaza Columbia, SC November, 1995 1995 46,700 Eastwood Festival Centre Birmingham, AL November, 1995 1989 284,475 Enterprise Plaza Huntsville, AL December, 1995 1995 41,000 Green Ridge Square Shopping Center Walker, MI December, 1995 1989 133,981 --------- Total 1995 Acquisitions 1,206,780 --------- Total Acquisitions 4,890,092 =========
The operating results of the acquired shopping centers are included in the results of operations of the Company from the date of purchase, including the acquisition of properties owned through joint ventures, discussed in Note 2. The properties owned through joint ventures are included in equity in net income of joint ventures in the statements of operations for the years ended December 31, 1997, 1996 and 1995. F-11 55 The following unaudited supplemental proforma information is presented to reflect the effects of the common share offerings, preferred share offerings, debt offerings and the property acquisitions consummated through December 31, 1997, including the joint venture acquisitions (Note 2), as if all such transactions had occurred on January 1, 1996 with regard to the 1997 and 1996 acquisitions and as if all such transactions relating to the 1995 and 1996 acquisitions had occurred on January 1, 1995. The pro forma financial information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the acquisitions occurred as indicated nor does it purport to represent the results of the operations for future periods (in thousands, except per share data):
For the years ended December 31, (Unaudited) 1997(a) 1996(b) 1995(c) -------- -------- -------- Pro forma revenues $172,113 $140,544 $114,016 ======== ======== ======== Pro forma income before extraordinary item $ 69,521 $ 53,273 $ 47,106 ======== ======== ======== Pro forma net income applicable to common shareholders $ 55,321 $ 39,074 $ 29,349 ======== ======== ======== Pro forma net income applicable to common shareholders: Basic $ 2.12 $ 1.70 $ 1.37 ======== ======== ======== Diluted $ 2.10 $ 1.70 $ 1.36 ======== ======== ======== (a) Reflects revenues and expenses of the properties acquired in 1997 for the period January 1, 1997 through the effective date of acquisition. Operating results for the Company's acquired properties located in San Antonio, TX; Ahwatukee, AZ; Eagan, MN; St. Paul, MN and Denver, CO are not reflected in the 1997 pro forma information prior to their respective acquisition dates because these shopping centers were either under development or in the lease-up phase and, accordingly, the related operating information for such centers either does not exist or would not be meaningful. (b) Reflects revenues and expenses of the properties acquired in 1997 and 1996 for the period January 1, 1996 through the effective date of acquisition. Operating results for the Company's acquired properties located in Phoenix, AZ; Maple Grove, MN; Highland, IN; Fort Worth, TX; Portland, OR; San Antonio, TX; Ahwatukee, AZ; Eagan, MN; St. Paul, MN and Denver, CO are not reflected in the 1996 pro forma information prior to their respective acquisition dates because these shopping centers were either under development or in the lease-up phase and, accordingly, the related operating information for such centers either does not exist or would not be meaningful. (c) Reflects revenues and expenses of the properties acquired in 1996 and 1995 for the period January 1, 1995 through the dates of acquisition. Operating results for all five of the Company's 1996 acquired properties and 1995 acquired properties located in Orangeburg, SC; Anderson, SC; Columbia, SC and Huntsville, AL and with regard to the acquisition of the Community Center Properties the shopping centers located in Durham, NC; Marietta, GA; Independence, MO; Atlanta, GA and Phase II of Framingham, MA are not reflected in the 1995 pro forma information prior to their respective acquisition dates because these shopping centers were either under development or in the lease-up phase and, accordingly, the related operating information for such centers either does not exist or would not be meaningful.
4. OTHER REAL ESTATE INVESTMENTS In December 1997, the Company and Hendon Associates formed a joint venture to acquire 33 retail sites, formerly occupied by Best Products, from Metropolitan Life. Under the terms of the joint venture with Hendon Associates, the Company advanced the capital to fund the purchase price of the assets. The 33 retail sites, are located in 13 states with concentrations in Ohio, California and New Jersey. These sites were acquired at an initial cost of approximately $54.5 million. In February 1998, the Company's joint venture interest was contributed to the Retail Value Fund, a joint venture with Prudential Real Estate Investors (Note 18). Additionally, in December 1997, the Company acquired a 42.5% ownership interest in a 584,000 square foot shopping center, located in Princeton, NJ for an initial cost of approximately $7.7 million. During the first quarter of 1998, the Company anticipates acquiring the balance of the ownership interest in the property through the issuance of approximately 11,850 operating partnership units and the assumption of approximately $27.7 million of debt. The total purchase price of the shopping center, including liabilities assumed, is expected to be approximately $36.4 million. The Company also acquired a 45.1% ownership interest in an adjacent development site at an initial cost of approximately $9.9 million. Upon completion of construction, the Company anticipates acquiring the remaining ownership interest for cash and operating partnership units. The Company is awaiting the mortgagor's final consent prior to acquiring the remaining interest. In the event that final approval is not received, the purchase can be rescinded. 5. NOTES RECEIVABLE At December 31, 1997, notes receivable aggregated $4.1 million and was comprised of two notes. The Company acquired a 50% participating interest together with Bank of America National Trust in a construction loan receivable secured by a first mortgage on certain real estate relating to a 0.5 million square foot shopping center development in Phoenix, AZ. The note, aggregating approximately $3.1 million at December 31, 1997, bears interest at the rate of 8.5% per annum and is due in July 1999. The Company has committed to fund up to $10.5 million, or 50%, of the aggregate construction loan and has received a first right of refusal on the purchase of the property upon completion of construction. In addition, the Company provided an advance of $1.0 million to a west coast developer in accordance with a master partnership agreement. The note is secured by certain rights in future development projects and a personal guaranty. The note bears interest at 10.5% and is due in March 1999. The Company is committed to advance a total of $1.2 million. F-12 56 6. DEFERRED CHARGES Deferred charges consist of the following (in thousands):
December 31, 1997 1996 ------- ------- Deferred financing costs $ 9,056 $ 7,301 Organization costs 146 144 ------- ------- 9,202 7,445 Less-accumulated amortization (4,534) (3,149) ------- ------- $ 4,668 $ 4,296 ======= =======
The Company incurred deferred finance costs aggregating $1.9 million and $1.0 million in 1997 and 1996, respectively, primarily relating to the Company's issuance of Senior Notes (Note 8) and unsecured revolving credit agreements (Note 7). Amortization of deferred charges was $1.4 million, $1.5 million and $1.7 million for the years ended December 1997, 1996 and 1995, respectively. During 1995, the Company wrote off $3.6 million (none in 1996 and 1997) of unamortized deferred finance costs in conjunction with the repayment of certain secured indebtedness. 7. REVOLVING CREDIT FACILITIES In May 1995, the Company obtained a three year $150 million unsecured revolving credit facility from a syndicate of financial institutions for which the First National Bank of Chicago serves as agent (the "Unsecured Credit Facility"). In June 1996, the Company renegotiated the terms of this facility to extend the agreement one year, to May 1999, reduce the specified spread over LIBOR and reduced the unused commitment fees. In March 1997, the Company again renegotiated the terms for this facility to extend the agreement an additional year, through May 2000, and reduced the interest rate 15 basis points. The amendment also introduced a competitive bid feature for up to $75 million of borrowings. Borrowings under this facility bear interest at variable rates based on LIBOR plus a specified spread, (1.10% at December 31, 1997). The spread is dependent on the Company's long term senior unsecured debt rating from Standard and Poor's and Moody's Investors Service. The Company is required to comply with certain covenants relating to total outstanding indebtedness, secured indebtedness, net worth, maintenance of unencumbered real estate assets and debt service coverage. The facility also provides for commitment fees of 0.20% on the unused credit amount. The Unsecured Credit Facility is used to finance the acquisition of real estate, to provide working capital and for general corporate purposes. At December 31, 1997 and 1996, total borrowings under this facility aggregated $138.2 million and $88.5 million, respectively, with a weighted average interest rate of 7.9% and 6.9%, respectively. In September 1996, the Company entered into a three year, $10 million unsecured revolving credit facility with National City Bank. In April 1997, the Company renegotiated the terms of this facility to extend the agreement through November 2000 and reduce the interest rate 15 basis points. Borrowings under this facility bear interest at variable rates based on the prime rate or LIBOR plus a specified spread (1.10% at December 31, 1997). The spread is dependent on the Company's long term senior unsecured debt rating from Standard and Poor's and Moody's Investors Service. The Company is required to comply with certain covenants relating to total outstanding indebtedness, secured indebtedness, net worth, maintenance of unencumbered real estate assets and debt service coverage. The facility also provides for commitment fees of 0.20% on the unused credit amount. At December 31, 1997 and 1996, total borrowings under this facility aggregated $1.5 million and $7.0 million, respectively, with a weighted average interest rate of 7.1% and 6.8%, respectively. In January 1995, the Company terminated a $25 million secured revolving credit facility in conjunction with the successful completion of a 2,875,000 common share offering and recognized an extraordinary charge of $0.3 million in the first quarter of 1995 primarily relating to the write-off of unamortized deferred finance costs. In the second quarter of 1995, the Company terminated a $150 million secured revolving credit facility with Nomura Asset Capital Corporation. As a result, the Company recognized a non-cash extraordinary charge of $3.3 million relating to the unamortized deferred finance costs written off. Total commitment fees paid by the Company on its revolving credit facilities in 1997, 1996 and 1995 aggregated approximately $0.3 million, $0.3 million and $0.4 million, respectively. 8. FIXED RATE SENIOR NOTES In May 1995, the Company issued, through an underwritten offering, $100 million of unsecured Fixed Rate Senior Notes at a discount to 99.693% which mature on May 15, 2000. The Fixed Rate Senior Notes bear a coupon interest rate of 7.625% per annum. Interest is paid semi-annually in arrears on May 15 and November 15. In 1995, through its Medium Term Note (MTN) program, the Company issued $4 million of unsecured Fixed Rate Senior Notes at interest rates of 7.15% and 7.28% and maturities of seven and ten years, respectively. In 1996, the Company issued $111.7 million of MTN's at interest rates ranging from 6.58% to 7.42% and maturities of five to seven years. In 1997, the Company issued $102 million of MTN's at interest rates ranging from 6.80% to 7.02% and maturities of five to ten years. Interest is paid semi-annually in arrears on May 15 and November 15. The above Fixed Rate Senior Notes may not be redeemed by the Company prior to maturity and will not be subject to any sinking fund. The Fixed Rate Senior Notes were issued pursuant to an indenture dated May 1, 1994 which contains certain covenants including limitation on incurrence of debt, maintenance of unencumbered real estate assets and debt service coverage. In March 1997, the Company issued, through a grantor trust, $75 million of Pass-Through Asset Trust Securities (PATS), due March 2002, at a discount to 99.53%. These certificates are secured by fifteen year notes ("Notes") maturing March 2012, issued by the Company to the trust. The trust sold an option which enables the option holder to remarket the Notes upon maturity of the certificates in March 2002. Simultaneously with the sale of the certificates, the trust purchased the Notes from the Company for a premium in the amount of the option payment. F-13 57 This premium, $1.4 million at December 31, 1997, is being amortized over the fifteen year life of the notes and is included in other liabilities. If the option holder does not elect to remarket the notes, then they become due and payable in March 2002. These notes are Fixed Rate Senior Notes with a coupon interest rate of 7.13% per annum. Interest is paid semi-annually in arrears on March 15 and September 15. 9. SUBORDINATED CONVERTIBLE DEBENTURES In August 1994, the Company issued, through an underwritten offering, $60 million of unsecured subordinated convertible debentures ("Debentures") which mature on August 15, 1999. The Debentures bear interest at 7% per annum. Interest is paid semi-annually in arrears on February 15 and August 15. The Debentures were issued pursuant to an indenture dated May 1, 1994. The Debentures are non-callable by the Company and are convertible at anytime prior to maturity into common shares at a conversion price of $33-3/8 per share, subject to adjustment under certain conditions. The Debentures are unsecured and subordinate to present and future senior indebtedness, as defined in the indenture. During 1997, Debentures in the principal amount of $13.1 million were converted into 392,754 common shares. In accordance with the indenture, the related accrued but unpaid interest was forfeited by the holders. In addition, upon conversion of the debentures, approximately $0.2 million of unamortized debenture issue costs were charged to additional paid-in-capital. 10. MORTGAGES PAYABLE AND SCHEDULED PRINCIPAL REPAYMENTS At December 31, 1997, mortgages payable, collateralized by real estate with a net book value of approximately $143.6 million and related tenants leases, are generally due in monthly installments of principal and/or interest and mature at various dates through 2019. Interest rates ranged from approximately 5.3% to 10.9% (averaging 8.6% at December 31, 1997 and 1996). Variable rate debt obligations, reflected in mortgages payable at December 31, 1997 and 1996, totaled approximately $2.8 million and $3.1 million, respectively. Interest rates on the variable rate debt averaged 5.3% and 6.1% at December 31, 1997 and 1996, respectively. As of December 31, 1997, the scheduled principal payments of mortgages payable, senior notes, revolving credit facilities and Debentures for the next five years and thereafter are as follows:
Year Amount ---- ------ 1998 $ 4,580 1999 81,673 2000 141,443 2001 88,725 2002 104,874 Thereafter 247,226 -------- $668,521 ========
Principal payments in the year 2000 include $39.7 million maturing on the revolving credit facilities. Principal payments in the year 2002 assume that the option holder (Note 8)will not exercise the option to remarket the Notes and the trust will therefore put the Notes to the Company to finance the reacquisition of the PATS at their maturity. The maturities have been adjusted to reflect the issuance of a $100 million, ten-year MTN issued in January 1998. The proceeds were used to reduce amounts outstanding on the revolving credit facilities at December 31, 1997. 11. FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating fair value disclosures of financial instruments: Cash and cash equivalents, accounts receivable, accounts payable, accruals and other liabilities: The carrying amounts reported in the balance sheet for these financial instruments approximated fair value because of their short maturities. The carrying amount of straight-line rents receivable does not materially differ from their fair market value. Notes receivable and advances to affiliates: The fair value is estimated by discounting the current rates at which similar loans would be made. At December 31, 1997 and 1996, the carrying amounts reported in the balance sheet approximate fair value. Debt: The carrying amounts of the Company's borrowings under its revolving credit facilities approximate fair value because such borrowings are at variable rates. The fair value of Fixed Rate Senior Notes was based on the Company's estimated interest rate spread over the applicable treasury rate with a similar remaining maturity. Fair value of the mortgage debt was estimated using a discounted cash flow analysis, based on the Company's incremental borrowing rates for similar types of borrowing arrangements with the same remaining maturities. Fair value of the Debentures was determined based on their closing price as of December 31, 1997 and 1996, as reported by the New York Stock Exchange. Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instrument. F-14 58 Financial instruments at December 31, 1997 and 1996, with carrying values that are different than estimated fair values are summarized as follows (in thousands):
1997 1996 ---------------------------------- --------------------------------- Carrying Amount Fair Value Carrying Amount Fair Value --------------- ---------- --------------- ---------- Debentures $ 46,891 $ 52,049 $ 60,000 $ 63,000 Fixed Rate Senior Notes 392,254 400,862 215,493 218,828 Mortgage debt 89,676 93,943 107,440 112,085 -------- -------- -------- -------- $528,821 $546,854 $382,933 $393,913 ======== ======== ======== ========
The Company intends to continuously monitor and actively manage interest costs on its variable rate debt portfolio. The Company may, from time to time, enter into interest rate hedge agreements to manage interest costs and risks associated with changing interest rates. In addition, the Company believes that it has the ability to obtain funds through additional equity and/or debt offerings and the cost of obtaining such protection agreements in relation to the Company's access to capital markets will continue to be evaluated. 12. MINORITY EQUITY INTEREST, OPERATING PARTNERSHIP MINORITY INTERESTS, PREFERRED SHARES AND COMMON SHARES: MINORITY EQUITY INTEREST In 1997, the Company acquired, through a subsidiary partnership, a majority ownership interest in two adjacent shopping centers located in North Olmsted, Ohio. At the date of acquisition the shopping centers were valued at $56.7 million. The Company contributed cash and assumed liabilities aggregating $40.4 million and the balance of $16.3 million was retained by the seller as a minority equity interest. The minority equity interest is convertible by the minority equity interest owner, after February 28, 1998, into approximately 397,000 non-registered and non-transferrable common shares of the Company or for cash at the fair market value of the common shares on the date of conversion, not to aggregate less than $16.3 million. The minority equity interest owners are entitled to a priority cash return of 6.5% per annum on its partnership capital account balance, as defined in the partnership agreement. The priority cash return during 1997 aggregated $1.0 million and has been reflected as a charge to minority equity interest in the consolidated statements of operations. The Company also has the right to acquire the minority equity interest, any time after December 31, 1998, based upon the fair value of the shopping center, as defined in the partnership agreement. OPERATING PARTNERSHIP MINORITY INTERESTS During 1997, the Company acquired, through subsidiary partnerships, a majority ownership interest in two shopping centers. In conjunction with these acquisitions, the Company issued 8,942 operating partnership units which are convertible into common shares of the Company on a one for one basis. The unitholders are entitled to receive distributions per operating partnership unit equal to the per share distributions on the Company's common shares. During 1997, the unitholders received distributions aggregating approximately $.01 million which has been reflected as a charge to operating partnership minority interest in the consolidated statements of operations. PREFERRED SHARES In November and December 1995, the Company sold 4,215,000 depositary shares of 9.5% Class A Cumulative Redeemable Preferred Stock at $25 per depositary share. In December 1995, the Company sold 1,600,000 depositary shares of 9.44% Class B Cumulative Redeemable Preferred Stock at $25 per share. An additional 175,000 of Class B depositary shares were sold in January 1996, in conjunction with the underwriters' over allotment option. Both the Class A and B depositary shares represent 1/10 of a share of their respective preferred class of shares. The Class A and Class B depositary shares are not redeemable by the Company prior to November 15, 2000 and December 26, 2000, respectively, except in certain circumstances relating to the preservation of the Company's status as a REIT. The aggregate net proceeds of approximately $144 million were used in part to fund the Company's equity investment relating to the acquisition of the Community Center Properties (Note 2) and to retire variable rate indebtedness, primarily Floating Rate Senior Notes. On April 29, 1996, the Company's shareholders authorized (i) 1,500,000 Class C Cumulative Preferred Shares, without par value, (ii) 1,500,000 Class D Cumulative Preferred Shares, without par value; (iii) 1,500,000 Class E Cumulative Preferred Shares, without par value and (iv) the reduction of the number of authorized Class A Cumulative Preferred Shares, without par value, Class B Cumulative Preferred Shares, without par value and Noncumulative Preferred Shares, without par value from 3,000,000 to 1,500,000 each. All of the aforementioned Class C, Class D, Class E and Noncumulative Preferred Shares are unissued at December 31, 1997. The Company has issued 421,500 and 177,500 of Class A and Class B Cumulative Preferred Shares, respectively, at December 31, 1997 and 1996. F-15 59 COMMON SHARES Common share issuances over the three year period ended December 31, 1997 are as follows:
Net Issuance Number of Price Per Proceeds Date Shares Share (in millions) - ------------- --------- -------- ------------ January 1995 2,875,000 $28.25 $ 76.5 March 1996 2,611,500 $28.95 75.4 January 1997 3,350,000 $36.625 115.8 June 1997 1,300,000 $38.145 49.4 September 1997 507,960 $39.1875 18.8 December 1997 316,800 $37.75 11.3
The aggregate net proceeds of $347.2 million from the above offerings were primarily used to repay amounts outstanding on revolving credit facilities and for general corporate purposes. 13. TRANSACTIONS WITH RELATED PARTIES In April 1995, the Company acquired from a partnership owned by the former chairman of the board of directors and an officer of the Company, two outparcels and approximately eight acres of land adjacent to a shopping center purchased by the Company in 1994 at a purchase price of approximately $3 million. The two out parcels were pre-leased and an 81,000 square foot Kohl's Department store was constructed on the eight acres of land. During 1996, this shopping center was contributed into a joint venture with OSTRS (Note 2) at a fair market value of approximately $24.6 million. At the date of transfer, the net book value of the transferred property was approximately $20.3 million. The Company has agreed to acquire, from the affiliates previously referred to, additional land parcels and expansion areas which are located adjacent to the properties previously acquired. The Company's purchase price has not yet been determined since it is subject to the leasing and/or construction of vacant space and resolution of various other contingencies. The Company entered into a lease for office space owned by one of its principal partners/shareholders. General and administrative rental expense associated with this office space, for the years ended December 31, 1997, 1996 and 1995 aggregated $0.6 million, $0.5 million, and $0.3 million, respectively. The increase in rental expense was primarily related to the leasing of additional space to accommodate the Company's growth. The Company also entered into a management agreement in 1993 with a partnership, owned in part by a related party, in which management fee and leasing fee income of $0.1 million was earned in 1997, 1996 and 1995. Transactions with the Company's equity affiliates have been described in Note 2. 14. COMMITMENTS AND CONTINGENCIES The Company is engaged in the operation of shopping centers/ malls and business centers which are either owned or, with respect to seven shopping centers, operated under long-term ground leases which expire at various dates through 2097. Space in the shopping centers is leased to tenants pursuant to agreements which provide for terms ranging generally from one to 30 years and, in some cases, for annual rentals which are subject to upward adjustments based on operating expense levels, sales volume, or contractual increases as defined in the lease agreements. The scheduled future minimum revenues from rental properties under the terms of all noncancelable tenant leases, assuming no new or renegotiated leases or option extensions for such premises, for the subsequent five years ending December 31, are as follows (in thousands): 1998 $ 133,748 1999 125,670 2000 115,945 2001 107,209 2002 98,602 Thereafter 827,943 ---------- $1,409,117 ==========
Scheduled minimum rental payments under the terms of all non-cancelable operating leases in which the Company is the lessee, principally for office space and ground leases, for the subsequent five years ending December 31, are as follows (in thousands): 1998 $ 1,465 1999 1,547 2000 1,577 2001 1,577 2002 1,577 Thereafter 65,882 ---------- $ 73,625 ==========
In conjunction with the development and expansion of various shopping centers as of December 31, 1997, the Company has entered into agreements for the construction of the shopping centers and acquisition of land aggregating approximately $4.7 million. 15. OTHER INCOME Other income was comprised of the following (in thousands):
For the years ended December 31, 1997 1996 1995 ---- ---- ---- Interest $2,083 $1,213 $1,227 Temporary tenant rentals (kiosks) 830 689 636 Lease termination fees 2,830 3,007 624 Development fees 1,003 672 804 Other 662 417 318 ------ ------ ------ $7,408 $5,998 $3,609 ====== ====== ======
F-16 60 16. BENEFIT PLANS STOCK OPTION AND OTHER EQUITY BASED PLANS Effective January 31, 1993, the Company established an incentive and non-qualified stock option plan under which 2,056,903 of the Company's common shares at December 31, 1997 were reserved for issuance to eligible employees. Options may be granted at per share prices not less than fair market value at the date of grant, and in the case of incentive options, must be exercisable within ten years thereof (or, with respect to options granted to certain shareholders, within five years thereof). Options granted under the plan generally become exercisable on the year after the date of grant as to one third of the optioned shares, with the remaining options being exercisable over the following two-year period. As of December 31, 1997, 1996 and 1995, 742,540, 555,057 and 381,193 options, respectively, were exercisable. Option prices range from $22 to $46.5625 per share. In addition to the stock option plan described above, the Company granted options for a total of 470,000 shares to its directors and certain officers who are not employees of the Company. Such options were granted at the fair market value on the date of grant. Options with respect to 25,000 shares were exercisable one year from the date of grant, and options with respect to the remaining 445,000 shares become exercisable one year after the date of grant as to one third of the 445,000 shares with the remaining options being exercisable over the following two-year period. As of December 31, 1997, 1996 and 1995, options aggregating 355,000, 253,333 and 158,334, respectively, were exercisable, of which, 5,000 were exercised during each of 1997 and 1996. Option prices range from $22 to $37.125 per share. The following table reflects the stock option activity described above (in thousands):
Number of Options Price Employees Directors Range --------- --------- ----- Balance December 31, 1994 700 325 $22.00 - $31.75 Granted 179 - 26.75 - 31.75 Exercised (11) - 22.00 - 29.25 Canceled (41) - 22.00 - 31.75 ------ ----- --------------- Balance December 31, 1995 827 325 22.00 - 31.75 Granted 533 120 28.88 - 34.00 Exercised (66) (5) 22.00 - 30.75 Canceled (29) - 22.00 - 31.75 ------ ----- --------------- Balance December 31, 1996 1,265 440 22.00 - 34.00 Granted 501 25 35.63 - 46.56 Exercised (127) (5) 22.00 - 31.50 Canceled (31) - 27.75 - 39.44 ------ ----- --------------- Balance December 31, 1997 1,608 460 $22.00 - $46.56 ====== ===== ===============
In April 1996, the shareholders approved an equity-based award plan which provides for the grant, to key employees of the Company, of options to purchase common shares of the Company, rights to receive the appreciation in value of common shares, awards of common shares subject to restrictions on transfer, awards of common shares issuable in the future upon satisfaction of certain conditions, rights to purchase common shares and other awards based on common shares. Under the terms of the Award Plan, awards may be granted with respect to an aggregate of not more than 600,000 common shares. In 1997, the Board of Directors approved the issuance of 450,000 stock options at option prices ranging from $36.50 to $40.25 to the Company's Chief Executive Officer which vested upon issuance. Of the options granted, 350,000 were issued outside of a qualified plan. In 1996, the Board of Directors approved a grant of 25,000 restricted shares of common stock and 15,000 Participation Units to the Company's Chief Executive Officer. The 25,000 shares of restricted stock vest in equal annual amounts of 5,000 shares per year through the year 2000. The 15,000 Participation Units will be converted into common shares, ranging from 15,000 common shares to 100,000 common shares at the end of five years depending upon achievement of performance objectives. The actual number of shares issued will be based upon the average annual total shareholder return during the five year period. During 1997 and 1996, approximately $1.3 million and $0.5 million, respectively, was charged to expense associated with awards under the equity based award plan relating to restricted stock and participation units. The Company applies APB 25, "Accounting for Stock Issued to Employees" in accounting for its plans. Accordingly, the Company does not recognize compensation cost for stock options when the option exercise price equals or exceeds the market value on the date of the grant. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair values of the options granted at the grant dates, consistent with the method set forth in the Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", the Company's net income and earnings per share would have been as follows (dollars in thousands, except per share data):
1997 1996 1995 ---- ---- ---- Net income applicable to As reported $53,322 $35,342 $24,250 common shareholders Pro forma $47,515 $33,905 $22,640 Basic earnings As reported $2.06 $1.67 $1.29 per share Pro forma $1.84 $1.60 $1.21 Diluted earnings As reported $2.05 $1.67 $1.28 per share Pro forma $1.82 $1.60 $1.20
The fair value of each option grant was estimated on the date of grant using the Black-Sholes options pricing model using the following assumptions:
For the years ended December 31, 1997 1996 1995 ---------- ---------- ---------- Risk free interest rate (range) 5.8%-7.9% 6.5%-6.8% 5.6%-7.4% Dividend yield 6.8%-7.1% 7.8% 7.7%-7.8% Expected life (range) 8.1-10 years 8.3-10 years 8.3-10 years Expected volatility (range) 22.5%-31.7% 17.1%-24.4% 15.4%-24.4%
F-17 61 401(k) PLAN Effective July 1, 1994, the Company adopted a 401(k) defined contribution plan covering substantially all of the officers and employees of the Company which permits participants to defer up to a maximum of 15%of their compensation. The Company will match 25%of the employee's contributions up to a maximum of 6% of an employee's annual compensation. The Company may also make additional discretionary contributions. Employees' contributions are fully vested and the Company's matching contributions vest 20%per year, including service prior to the plan's effective date. Once an employee has been with the Company five years, all matching contributions are fully vested. The Company's contributions to the plan for the years ended December 31, 1997, 1996 and 1995 were made by the issuance of Company stock with a market value of $.04 million, $.03 million and $.02 million, respectively. The 401(k)plan is fully funded at December 31, 1997. ELECTIVE DEFERRED COMPENSATION PLAN Effective October 15, 1994, the Company adopted a non-qualified elective deferred compensation plan for certain key executives which permits eligible employees to defer up to 25% of their compensation. The Company will match 25% of an employee's contributions up to a maximum of 6% of an employee's annual compensation, after deducting contributions, if any, made in conjunction with the Company's 401(k) plan. Both the deferred and matching contributions are made in Company performance units with the gains and losses being related to the Company's quoted share price. Deferred compensation charged to expense related to an employee's contribution is fully vested and the Company's matching contribution vests 20% per year, including service prior to the plan's effective date. Once an employee has been with the Company five years, all matching contributions are fully vested. The Company's contribution, including plan earnings for the years ended December 31, 1997, 1996 and 1995 was $.04 million, $.05 million and $.02 million, respectively. At December 31, 1997, 1996 and 1995, deferred compensation under this plan aggregated $0.3 million, $0.2 million and $0.1 million, respectively. The plan is not funded. 17. EARNINGS AND DIVIDENDS PER SHARE Earnings per Share (EPS) have been computed pursuant to the provisions of Statement of Financial Accounting Standards No. 128 which became effective for all financial statements issued after December 15, 1997. All periods prior thereto have been restated to conform with the provisions of this Statement. The following table provides a reconciliation of both income before extraordinary item and the number of common shares used in the computations of "basic" EPS, which utilized the weighted average number of common shares outstanding without regard to dilutive potential common shares, and "diluted" EPS, which includes all such shares. For the year ended December 31, (In thousands, except per share amounts)
1997 1996 1995 -------- -------- -------- Income before extraordinary item $ 67,522 $ 49,542 $ 29,062 Less: Preferred stock dividend (14,200) (14,200) (1,255) -------- -------- -------- Basic EPS - Income before extraordinary item applicable to common shareholders 53,322 35,342 27,807 Effect of dilutive securities: Operating partnership minority interests 10 -- -- -------- -------- -------- Diluted EPS - Income before extraordinary item applicable to common shareholders plus assumed conversions $ 53,332 $ 35,342 $ 27,807 ======== ======== ======== NUMBER OF SHARES: Basic - average shares outstanding 25,880 21,147 18,780 Effect of dilutive securities: Operating partnership minority interests 3 -- -- Stock options 176 36 129 Restricted stock 3 3 -- -------- -------- -------- Diluted - average shares outstanding 26,062 21,186 18,909 ======== ======== ======== PER SHARE AMOUNT: Income before extraordinary item Basic $ 2.06 $ 1.67 $ 1.48 Diluted $ 2.05 $ 1.67 $ 1.47
Options to purchase 2,067,706, 1,704,634, and 1,151,923 shares of common stock were outstanding at December 31, 1997, 1996 and 1995, respectively (Note 16), a portion of which has been reflected above using the treasury stock method. Restricted shares totaling 15,000 and 20,000, respectively, were not vested at December 31, 1997 and 1996 (none in 1995) and consequently, were not included in the computation of basic EPS (Note 16). Performance Units issued in 1996, convertible into 15,000 to 100,000 common shares of the Company, were not included in the computation of diluted EPS in 1997 and 1996 because the effect was antidilutive (Note 16). Debentures which are convertible into common shares of the Company at a price of $33-3/8, were not included in the computation of diluted EPS in 1997, 1996 and 1995 because the effect was antidilutive (Note 9). The conversion of DRA's interest in the Merriam, San Antonio and Community Center Joint Ventures were not included in the computation of diluted EPS because the effect was antidilutive, for all years presented, where applicable (Note 2). The conversion into common stock of the Minority Equity Interest were not included in the computation of diluted EPS in 1997 because the effect of assuming conversion was antidilutive (Note 12). F-18 62 Dividends declared per share for the years ended December 31, 1997, 1996 and 1995 are summarized as follows:
GROSS ORDINARY NON-TAXABLE CAPITAL GAIN TOTAL 1997 DIVIDENDS DATE PAID INCOME RETURN OF CAPITAL DISTRIBUTIONS DIVIDENDS - -------------------------------------------------------------------------------------------------------------------------------- 1st quarter 03/31/97 $0.50 $0.11 $0.02 $ .63 2nd quarter 06/30/97 0.52 0.11 - .63 3rd quarter 09/30/97 0.52 0.11 - .63 4th quarter 12/30/97 0.50 0.11 0.02 .63 ----- ----- ----- ----- $2.04 $0.44 $0.04 $2.52 ===== ===== ===== ===== GROSS ORDINARY NON-TAXABLE CAPITAL GAIN TOTAL 1996 DIVIDENDS DATE PAID INCOME RETURN OF CAPITAL DISTRIBUTIONS DIVIDENDS - -------------------------------------------------------------------------------------------------------------------------------- 1st quarter 04/01/96 $0.475 $0.12 $.005 $ .60 2nd quarter 07/01/96 0.475 0.12 .005 .60 3rd quarter 09/30/96 0.475 0.12 .005 .60 4th quarter 12/30/96 0.475 0.12 .005 .60 ------ ----- ----- ----- $1.90 $0.48 $.02 $2.40 ====== ===== ===== ===== GROSS ORDINARY NON-TAXABLE CAPITAL GAIN TOTAL 1995 DIVIDENDS DATE PAID INCOME RETURN OF CAPITAL DISTRIBUTIONS DIVIDENDS - -------------------------------------------------------------------------------------------------------------------------------- 1st quarter 03/31/95 $0.43 $0.11 $ - $ .54 2nd quarter 06/30/95 0.43 0.11 - .54 3rd quarter 09/29/95 0.43 0.11 - .54 4th quarter 12/29/95 0.43 0.11 - .54 ----- ----- ----- ----- $1.72 $0.44 $ - $2.16 ===== ===== ===== =====
18. SUBSEQUENT EVENTS In January 1998, the Company issued $100 million of senior unsecured fixed rate notes through its Medium Term Note program with a ten year maturity and a 6.625% coupon rate. The proceeds were used to repay variable rate borrowings on the Company's revolving credit facilities. On February 11, 1998, the Company entered into a joint venture with Prudential Real Estate investors and established the Retail Value Fund ("Fund"). The Fund will invest in retail properties within the United States that are in need of substantial retenanting and market repositioning. This Fund may also provide equity or debt investments in companies owning or managing retail properties as well as in third party development projects that provide significant growth opportunities. The retail property investments may include enclosed malls, neighborhood centers or other potential commercial redevelopment opportunities. The Company is expected to maintain an ownership interest of approximately 25% in the Fund. The Fund will have its own employees and the Company will assume retail management and operating responsibilities including leasing, redevelopment and accounting and will be paid fees in consideration of the foregoing services. On February 11, 1998, the Company contributed its ownership interest in the joint venture formed with Hendon Associates to the Fund and, in exchange for a 75% ownership interest, the Company was reimbursed approximately $41.5 million from Prudential Real Estate Investors, representing 75%of its invested capital. The proceeds of $41.5 million were used to repay variable rate borrowings on the Company's revolving credit facilities. F-19 63 19. PRICE RANGE OF COMMON SHARES (UNAUDITED) The high and low sale prices per share of the Company's common shares, as reported on the New York Stock Exchange Composite tape, and declared dividends per share for the quarterly periods indicated were as follows:
High Low Dividends ------------------------------------------------------------------------------------ 1997: First $38-5/8 $34-1/4 $ .63 Second 40 35-7/8 .63 Third 40-1/4 38-1/4 .63 Fourth 41-1/4 37-5/16 .63 -------- -------- ------ 1996: First $ 31-3/4 $ 28-1/8 $ .60 Second 32 28-1/8 .60 Third 33-1/8 30-1/2 .60 Fourth 37-1/4 32-1/8 .60 -------- -------- ------
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table sets forth the quarterly results of operations for the years ended December 31, 1997 and 1996 (in thousands, except per share amounts):
First Second Third Fourth Total ----- ------ ----- ------ ----- 1997: Revenues $37,453 $40,866 $42,673 $48,048 $169,040 Income before equity in net income of joint ventures, minority interests and gain on sales of real estate 11,576 13,585 13,807 15,184 54,152 Income before extraordinary item 17,554 15,941 16,747 17,280 67,522 Net income 17,554 15,941 16,747 17,280 67,522 Net income applicable to common shareholders 14,004 12,391 13,197 13,730 53,322 Basic: Income before extraordinary item per common share $ .57 $ .49 $ .50 $ .50 $ 2.06 Net income per common share $ .57 $ .49 $ .50 $ .50 $ 2.06 Weighted average number of shares 24,515 25,164 26,556 27,297 25,880 Diluted: Income before extraordinary item per common share $ .56 $ .48 $ .49 $ .49 $ 2.05 Net income per common share $ .56 $ .48 $ .49 $ .49 $ 2.05 Weighted average number of shares 24,937 25,613 27,074 27,802 26,062 First Second Third Fourth Total ----- ------ ----- ------ ----- 1996: Revenues $30,635 $31,904 $34,534 $33,832 $130,905 Income before equity in net income of joint ventures 9,204 11,242 10,788 9,599 40,833 Income before extraordinary item 11,216 13,104 12,926 12,296 49,542 Net income 11,216 13,104 12,926 12,296 49,542 Net income applicable to common shareholders 7,666 9,554 9,376 8,746 35,342 Basic: Income before extraordinary item per common share $ .39 $ .44 $ .43 $ .40 $ 1.67 Net income per common share $ .39 $ .44 $ .43 $ .40 $ 1.67 Weighted average number of shares 19,705 21,591 21,618 21,637 21,147 Diluted: Income before extraordinary item per common share $ .39 $ .44 $ .43 $ .40 $ 1.67 Net income per common share $ .39 $ .44 $ .43 $ .40 $ 1.67 Weighted average number of shares 19,849 21,765 21,863 21,958 21,186
F-20 64 SCHEDULE II DEVELOPERS DIVERSIFIED REALTY CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS)
Balance at Balance at beginning of Charged end of year to expense Deductions year --------------- ----------- ------------- ------------ Year ended December 31, 1997 Allowance for uncollectible accounts..... $1,770 $ 749 $ 136 $2,383 ====== ====== ====== ====== Year ended December 31, 1996 Allowance for uncollectible accounts..... $ 990 $1,292 $ 512 $1,770 ====== ====== ====== ====== Year ended December 31, 1995 Allowance for uncollectible accounts..... $ 310 $ 721 $ 41 $ 990 ====== ====== ====== ======
F-21 65
SCHEDULE III DEVELOPERS DIVERSIFIED REALTY CORPORATION REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 1997 Initial Cost Total Cost (A) --------------------------------------- ----------------------------------------- Buildings & Buildings & Land Improvements Improvements Land Improvements Total --------------------------------------- ---------------------------------------- BRANDON, FL ............ $0 $4,111,281 $0 $0 $4,111,281 $4,111,281 STOW, OH ............... 1,035,856 9,028,257 0 992,520 14,138,737 15,131,257 FERN PARK, FL(ORLANDO) . 445,852 302,755 97,300 445,852 403,228 849,080 EASTLAKE, OH ........... 40,000 141,000 0 40,000 144,188 184,188 HIGHLAND HTS., OH (DEV). 3,987,052 7,895,991 0 3,987,052 13,302,042 17,289,094 WESTLAKE, OH ........... 424,225 3,802,863 203,235 424,225 4,055,160 4,479,385 WATERBURY, CT .......... 0 3,048,300 0 0 3,048,300 3,048,300 ZANESVILLE, OH ......... 0 619,023 0 0 619,023 619,023 E. NORRITON, PA ........ 80,408 4,697,718 233,380 80,408 6,998,264 7,078,672 PALM HARBOR, FL ........ 1,136,915 4,089,138 0 1,136,915 4,139,699 5,276,614 TARPON SPRINGS, FL ..... 248,067 7,381,640 80,859 248,067 8,292,015 8,540,082 BAYONET PT., FL ........ 2,112,566 8,180,960 127,530 2,124,621 8,318,603 10,443,224 STARKVILLE, MS ......... 819,323 5,253,897 0 1,269,081 9,648,182 10,917,263 STARKVILLE (KROGER) .... 451,758 2,955,317 0 0 0 0 TUPELO, MS ............. 2,282,000 14,978,722 0 2,282,000 15,679,372 17,961,372 JACKSONVILLE, FL ....... 3,005,420 9,425,063 0 3,005,420 9,451,229 12,456,649 STONE MOUNTAIN, GA ..... 460,471 3,018,074 21,890 460,471 3,043,151 3,503,622 BRUNSWICK, MA .......... 3,836,358 15,459,460 0 3,836,358 15,459,460 19,295,818 ATLANTA, GA ............ 475,360 9,373,552 0 475,360 9,549,569 10,024,929 ERIE, PA ............... 7,030,162 19,200,609 0 6,830,163 32,141,922 38,972,085 ERIE, PA ............... 3,850,317 0 0 548,930 0 548,930 ERIE, PA ............... 1 2,563,770 12,990 1 3,081,715 3,081,716 CHILLICOTHE, OH ........ 42,857 2,549,287 2,200 1,266,066 10,183,227 11,449,293 OCALA, FL .............. 26,800 351,065 25,028 26,800 376,093 402,893 TAMPA, FL (WATERS) ..... 4,105,230 6,640,240 324,071 3,905,230 7,264,437 11,169,667 WINCHESTER, VA ......... 618,075 13,903,078 0 618,075 18,694,206 19,312,281 HUBER HEIGHTS, OH ...... 757,422 14,468,512 1,000 757,422 14,499,966 15,257,388 LEBANON, OH ............ 651,025 911,178 30,993 651,025 1,026,666 1,677,691 WILMINGTON, OH ......... 156,975 1,615,646 50,575 156,975 1,676,221 1,833,196 HILLSBORO, OH .......... 79,579 1,984,831 0 79,579 1,984,831 2,064,410 CANTON, OH PHASE II .... 5,672,187 0 0 6,393,685 8,252,702 14,646,387 XENIA, OH .............. 948,202 3,938,138 0 948,202 5,995,219 6,943,421 BOARDMAN, OH ........... 9,025,281 0 0 8,777,281 20,977,237 29,754,518 CINCINNATI, OH ......... 2,399,250 11,238,105 172,198 2,399,250 12,103,901 14,503,151 BEDFORD, IN ............ 706,282 8,424,532 5,750 1,066,655 10,006,816 11,073,471 WATERTOWN, SD .......... 62,712 6,442,712 441,927 62,712 8,037,730 8,100,442 Total Cost, Net of Depreciable Date of Accumulated Accumulated Lives Construction (C) Depreciation Depreciation Encumbrances (Years) (1) Acquisition (A) ------------ ------------ ------------ ----------- ---------------- BRANDON, FL ............ $3,498,512 $612,769 $0 S/L 30 1972 (C) STOW, OH ............... 1,793,399 13,337,858 0 S/L 30 1969 (C) FERN PARK, FL(ORLANDO) . 257,783 591,297 0 S/L 30 1970 (C) EASTLAKE, OH ........... 114,385 69,803 0 S/L 30 1971 (C) HIGHLAND HTS., OH (DEV). 795,224 16,493,870 0 S/L 31.5 1995 (C) WESTLAKE, OH ........... 3,002,990 1,476,395 0 S/L 30 1974 (C) WATERBURY, CT .......... 2,497,483 550,817 0 S/L 30 1973 (C) ZANESVILLE, OH ......... 147,397 471,626 0 S/L 31.5 1990 (C) E. NORRITON, PA ........ 3,433,481 3,645,191 0 S/L 30 1975 (C) PALM HARBOR, FL ........ 357,114 4,919,500 0 S/L 31.5 1995 (A) TARPON SPRINGS, FL ..... 5,656,260 2,883,822 0 S/L 30 1974 (C) BAYONET PT., FL ........ 3,463,985 6,979,239 5,327,208 S/L 30 1985 (C) STARKVILLE, MS ......... 899,237 10,018,026 0 S/L 31.5 1994 (A) STARKVILLE (KROGER) .... 0 0 2,417,963 S/L 31.5 1994 (A) TUPELO, MS ............. 1,505,016 16,456,356 0 S/L 31.5 1994 (A) JACKSONVILLE, FL ....... 824,093 11,632,556 7,904,705 S/L 31.5 1995 (A) STONE MOUNTAIN, GA ..... 2,509,684 993,938 0 S/L 30 1973 (C) BRUNSWICK, MA .......... 244,221 19,051,597 0 S/L 30 1973 (C) ATLANTA, GA ............ 1,173,161 8,851,768 0 S/L 31.5 1994 (A) ERIE, PA ............... 2,248,850 36,723,235 0 S/L 31.5 1995 (C) ERIE, PA ............... 0 548,930 0 S/L 31.5 1995 (C) ERIE, PA ............... 2,041,151 1,040,565 0 S/L 30 1973 (C) CHILLICOTHE, OH ........ 1,722,760 9,726,533 0 S/L 30 1974 (C) OCALA, FL .............. 300,935 101,958 0 S/L 30 1974 (C) TAMPA, FL (WATERS) ..... 1,672,310 9,497,357 0 S/L 31.5 1990 (C) WINCHESTER, VA ......... 1,877,679 17,434,602 9,294,686 S/L 31.5 1993 (A) HUBER HEIGHTS, OH ...... 2,030,072 13,227,316 0 S/L 31.5 1993 (A) LEBANON, OH ............ 190,180 1,487,511 0 S/L 31.5 1993 (A) WILMINGTON, OH ......... 1,114,365 718,831 0 S/L 30 1977 (C) HILLSBORO, OH .......... 1,223,927 840,483 0 S/L 30 1979 (C) CANTON, OH PHASE II .... 113,482 14,532,905 0 S/L 31.5 1995 (A) XENIA, OH .............. 524,122 6,419,299 0 S/L 31.5 1994 (A) BOARDMAN, OH ........... 491,120 29,263,398 0 S/L 31.5 1997 (A) CINCINNATI, OH ......... 1,798,535 12,704,616 0 S/L 31.5 1993 (A) BEDFORD, IN ............ 1,149,938 9,923,533 0 S/L 31.5 1993 (A) WATERTOWN, SD .......... 4,450,561 3,649,881 0 S/L 30 1977 (C)
F-22 66 CONNERSVILLE, IN ........ 539,720 6,457,710 0 539,720 6,560,191 7,099,911 ASHLAND, OH ............. 209,500 2,272,624 0 209,500 2,375,424 2,584,924 PENSACOLA, FL ........... 1,804,641 4,010,290 273,372 1,804,641 4,334,862 6,139,503 W.65TH CLEVELAND, OH .... 90,120 1,463,076 15,000 90,120 1,538,563 1,628,683 LOS ALAMOS, NM .......... 725,000 3,499,950 30,336 725,000 3,535,058 4,260,058 NORTH OLMSTED, OH ....... 9,499,018 34,186,667 13,971 9,499,018 34,200,638 43,699,656 NORTH OLMSTED, OH ....... 2,710,188 10,821,949 0 2,710,188 10,821,949 13,532,137 TAMPA, FL (DALE) ........ 4,268,673 5,368,147 204,666 4,268,672 6,075,156 10,343,828 WAYNESVILLE, NC ......... 431,910 8,088,668 131,096 431,910 8,238,844 8,670,754 AHOSKIE, NC ............. 269,530 7,775,856 3,168 269,530 7,804,724 8,074,254 PULASKI, VA ............. 528,075 6,395,809 2,000 528,075 6,405,435 6,933,510 TWINSBURG, OH (VSA) ..... 341,025 2,108,098 0 341,025 1,916,716 2,257,741 AURORA, OH .............. 832,436 0 0 832,436 5,439,980 6,272,416 WORTHINGTON, MN ......... 373,943 6,404,291 440,740 373,943 7,644,203 8,018,146 HARRISBURG, IL .......... 550,100 7,619,281 0 550,100 7,815,528 8,365,628 MT. VERNON, IL .......... 1,789,009 9,398,696 111,000 1,789,009 9,755,535 11,544,544 FENTON, MO .............. 413,993 4,243,854 475,714 413,993 6,448,947 6,862,940 MELBOURNE, FL ........... 1 3,084,819 116,638 1 3,204,645 3,204,646 SIMPSONVILLE, SC ........ 430,800 6,563,154 0 430,800 6,567,154 6,997,954 CAMDEN, SC .............. 627,100 7,519,161 6,500 627,100 7,874,094 8,501,194 UNION, SC ............... 684,750 7,629,275 500 684,750 7,648,975 8,333,725 N. CHARLESTON, SC ....... 910,840 11,346,348 1,000 1,081,462 14,911,220 15,992,682 S. ANDERSON, SC ......... 1,365,600 6,117,482 13,170 1,365,600 6,150,152 7,515,752 ANDERSON, SC ............ 204,094 939,733 0 204,094 939,733 1,143,827 ORANGEBURG, SC .......... 317,934 1,692,836 0 317,934 1,717,836 2,035,770 MT. PLEASANT, SC ........ 2,583,887 10,469,891 0 2,583,887 10,469,891 13,053,778 COLUMBIA, SC ............ 600,000 3,262,624 0 600,000 3,262,624 3,862,624 SAULT STE. MARIE, MI .... 1,826,454 13,709,705 0 1,826,454 13,768,735 15,595,189 CHEBOYGAN, MI ........... 126,670 3,612,242 0 126,670 3,612,242 3,738,912 GRAND RAPIDS, MI ........ 1,926,389 8,039,411 0 1,926,389 8,053,836 9,980,225 HOUGHTON, MI ............ 439,589 7,300,952 1,820,772 439,589 9,325,011 9,764,600 BAD AXE, MI ............. 183,850 3,647,330 0 183,850 4,038,246 4,222,096 GAYLORD, MI ............. 269,900 8,727,812 2,250 269,900 9,069,932 9,339,832 HOWELL, MI .............. 331,500 11,938,263 750 331,500 12,083,413 12,414,913 MT. PLEASANT, MI ........ 766,950 7,768,538 20,340 766,950 11,486,554 12,253,504 ELYRIA, OH .............. 352,295 5,692,642 0 352,295 5,692,642 6,044,937 BEMIDJI, MN ............. 442,031 8,228,731 500,161 442,031 8,841,761 9,283,792 CAPE CORAL, FL .......... 1,286,628 2,548,149 149,507 1,286,628 4,692,355 5,978,983 TRINDAD, CO ............. 411,329 2,578,930 197,546 411,329 2,787,426 3,198,755 HAZARD, KY .............. 402,563 3,271,343 296,745 402,563 3,571,954 3,974,517 BIRMINGHAM, AL .......... 3,726,122 13,973,590 0 3,726,122 14,026,891 17,753,013 BIRMINGHAM, AL .......... 10,572,916 26,002,258 0 11,434,040 31,933,621 43,367,661 HUNTSVILLE, AL .......... 600,000 3,058,100 0 600,000 3,069,100 3,669,100 JACKSONVILLE, NC ........ 521,111 3,998,798 172,993 521,111 4,171,791 4,692,902 ORMOND BEACH, FL ........ 1,048,380 15,812,069 3,875 1,048,380 16,158,617 17,206,997 CONNERSVILLE, IN ........ 842,182 6,257,729 0 S/L 31.5 1993 (A) ASHLAND, OH ............. 1,567,512 1,017,412 0 S/L 30 1977 (C) PENSACOLA, FL ........... 1,276,899 4,862,604 0 S/L 30 1988 (C) W.65TH CLEVELAND, OH .... 1,016,896 611,787 0 S/L 30 1977 (C) LOS ALAMOS, NM .......... 1,261,325 2,998,733 0 S/L 30 1978 (C) NORTH OLMSTED, OH ....... 1,144,967 42,554,689 0 S/L 31.5 1997 (A) NORTH OLMSTED, OH ....... 343,954 13,188,183 0 S/L 31.5 1997 (A) TAMPA, FL (DALE) ........ 1,303,466 9,040,362 0 S/L 31.5 1990 (C) WAYNESVILLE, NC ......... 1,320,755 7,349,999 0 S/L 31.5 1993 (A) AHOSKIE, NC ............. 957,081 7,117,173 0 S/L 31.5 1994 (A) PULASKI, VA ............. 951,758 5,981,752 0 S/L 31.5 1993 (A) TWINSBURG, OH (VSA) ..... 485,477 1,772,264 0 S/L 31.5 1989 (C) AURORA, OH .............. 221,721 6,050,695 0 S/L 31.5 1995 (C) WORTHINGTON, MN ......... 4,034,575 3,983,571 0 S/L 30 1977 (C) HARRISBURG, IL .......... 928,534 7,437,094 0 S/L 31.5 1994 (A) MT. VERNON, IL .......... 1,407,261 10,137,283 0 S/L 31.5 1993 (A) FENTON, MO .............. 2,282,132 4,580,808 0 S/L 30 1983 (A) MELBOURNE, FL ........... 1,994,706 1,209,940 0 S/L 30 1978 (C) SIMPSONVILLE, SC ........ 834,675 6,163,279 0 S/L 31.5 1994 (A) CAMDEN, SC .............. 1,110,915 7,390,279 0 S/L 31.5 1993 (A) UNION, SC ............... 1,099,771 7,233,954 0 S/L 31.5 1993 (A) N. CHARLESTON, SC ....... 1,615,622 14,377,060 0 S/L 31.5 1993 (A) S. ANDERSON, SC ......... 758,275 6,757,477 0 S/L 31.5 1994 (A) ANDERSON, SC ............ 82,041 1,061,786 0 S/L 31.5 1995 (A) ORANGEBURG, SC .......... 147,787 1,887,983 0 S/L 31.5 1995 (A) MT. PLEASANT, SC ........ 913,884 12,139,894 6,889,913 S/L 31.5 1995 (A) COLUMBIA, SC ............ 224,413 3,638,211 0 S/L 31.5 1995 (A) SAULT STE. MARIE, MI .... 1,456,597 14,138,592 7,519,794 S/L 31.5 1994 (A) CHEBOYGAN, MI ........... 467,425 3,271,487 0 S/L 31.5 1993 (A) GRAND RAPIDS, MI ........ 512,265 9,467,960 0 S/L 31.5 1995 (A) HOUGHTON, MI ............ 5,839,310 3,925,290 2,798,376 S/L 30 1980 (C) BAD AXE, MI ............. 545,149 3,676,947 0 S/L 31.5 1993 (A) GAYLORD, MI ............. 1,254,464 8,085,368 0 S/L 31.5 1993 (A) HOWELL, MI .............. 1,594,211 10,820,702 7,462,728 S/L 31.5 1993 (A) MT. PLEASANT, MI ........ 1,328,492 10,925,012 0 S/L 31.5 1993 (A) ELYRIA, OH .............. 2,228,398 3,816,539 0 S/L 30 1977 (C) BEMIDJI, MN ............. 4,393,503 4,890,289 0 S/L 30 1977 (C) CAPE CORAL, FL .......... 1,184,263 4,794,720 0 S/L 30 1985 (C) TRINDAD, CO ............. 1,078,167 2,120,588 0 S/L 30 1986 (C) HAZARD, KY .............. 2,116,466 1,858,051 0 S/L 30 1978 (C) BIRMINGHAM, AL .......... 971,862 16,781,151 0 S/L 31.5 1994 (A) BIRMINGHAM, AL .......... 2,626,538 40,741,123 0 S/L 31.5 1995 (A) HUNTSVILLE, AL .......... 246,864 3,422,236 0 S/L 31.5 1995 (A) JACKSONVILLE, NC ........ 1,122,014 3,570,888 2,664,141 S/L 31.5 1989 (C) ORMOND BEACH, FL ........ 1,844,727 15,362,270 0 S/L 31.5 1994 (A)
F-23 67 ALAMOSA, CO ............ 161,479 1,034,465 210,958 161,479 1,253,273 1,414,752 WILMINGTON, NC ......... 4,785,052 16,851,571 1,182,775 4,227,212 24,124,566 28,351,778 BERLIN, VT ............. 858,667 10,948,064 23,935 866,217 11,080,244 11,946,461 BRAINERD, MN ........... 703,410 9,104,117 271,802 1,182,018 11,908,835 13,090,853 SPRING HILL, FL ........ 1,083,851 4,816,166 265,762 2,095,973 7,872,052 9,968,025 TIFFIN, OH ............. 432,292 5,907,856 434,761 432,292 6,547,704 6,979,996 TOLEDO, OH ............. 2,490,543 10,582,588 0 2,490,543 10,583,789 13,074,332 TOLEDO, OHIO ........... 5,556,887 0 0 5,556,887 5,556,887 DENVER, CO ............. 7,833,069 35,550,405 0 7,833,069 35,550,405 43,383,474 DICKINSON, ND .......... 57,470 6,864,237 354,820 51,148 7,427,717 7,478,865 WEST PASCO, FL ......... 1,422,383 6,552,470 8,500 1,121,383 6,560,970 7,682,353 MARIANNA, FL ........... 1,496,347 3,499,835 129,855 1,496,347 3,637,290 5,133,637 HUTCHINSON, MN ......... 401,502 5,510,326 656,937 426,502 6,244,921 6,671,423 NEW BERN, NC ........... 780,029 8,204,036 71,587 780,029 11,266,277 12,046,306 MENTOR, OH ............. 184,420 1,148,523 0 184,420 1,148,523 1,332,943 STREETSBORO, OH ........ 50,000 1,298,398 0 50,000 1,560,258 1,610,258 AURORA, OH ............. 100,000 2,909,005 0 100,000 2,937,911 3,037,911 HIGHLAND, IN ........... 4,003,400 20,101,245 0 4,003,400 22,891,664 26,895,064 AHWATUKEE, AZ PHASE I .. 5,302,089 21,521,302 0 5,302,089 21,539,594 26,841,683 AHWATUKEE, AZ PHASE II . 7,762,645 3,443,005 3,188 7,762,645 34,433,193 42,195,838 PHOENIX, AR ............ 1,733,400 6,979,713 0 1,733,400 8,356,783 10,090,183 ARROWHEAD CROSSING ..... 0 2,535 0 0 2,535 2,535 PHOENIX, AR ............ 4,686,600 21,569,807 0 4,686,600 21,569,307 26,255,907 MAPLE GROVE, MN ........ 4,564,278 18,379,324 0 4,564,277 18,410,333 22,974,610 ST. PAUL, MN ........... 4,467,901 18,084,446 0 4,467,901 18,093,315 22,561,216 TANASBOURNE TWN CTR .... 3,780,000 15,991,872 0 3,780,000 18,222,355 22,002,355 EAGAN, MN .............. 4,107,557 22,882,932 0 4,107,557 22,891,801 26,999,358 FORT WORTH, TX ......... 2,325,000 10,275,719 0 2,325,000 21,406,261 23,731,261 RUSSELLVILLE, AR ....... 624,100 13,391,122 0 624,100 13,400,969 14,025,069 N. LITTLE ROCK, AR ..... 907,083 17,159,794 0 907,083 17,187,763 18,094,846 FAYETTEVILLE, AK ....... 2,365,974 9,503,285 0 2,365,974 9,503,285 11,869,259 OTTUMWA, IA ............ 338,125 8,564,280 102,680 321,628 8,757,528 9,079,156 WASHINGTON, NC ......... 990,780 3,118,121 33,690 2,435,459 3,182,676 5,618,135 OVIDEO, FL ............. 6,010,173 0 0 6,010,173 0 6,010,173 ORLANDO, FL ............ 4,792,146 11,673,702 84,343 4,792,146 11,833,171 16,625,317 DURHAM, NC ............. 2,210,222 11,671,268 277,631 2,210,222 11,964,587 14,174,809 CRYSTAL RIVER, FL ...... 1,216,709 5,795,643 364,531 1,219,142 6,182,077 7,401,219 TWINSBURG, OH (HBC) .... 138,204 833,311 692,706 138,204 1,523,792 1,661,996 Portfolio Balance (DDR). 0 20,485,201 1,272,842 0 30,461,155 30,461,155 ------------------------------------------------------------------------------------- $206,034,339 $928,853,555 $13,278,039 $207,477,229 $1,118,265,475 $1,325,742,705 ============ ============ =========== ============ ============== ============== ALAMOSA, CO ............ 578,482 836,270 0 S/L 30 1986 (C) WILMINGTON, NC ......... 4,500,214 23,851,564 10,075,323 S/L 31.5 1989 (C) BERLIN, VT ............. 3,861,093 8,085,368 4,940,000 S/L 30 1986 (C) BRAINERD, MN ........... 1,790,888 11,299,965 935,000 S/L 31.5 1991 (A) SPRING HILL, FL ........ 1,561,272 8,406,753 6,134,476 S/L 30 1988 (C) TIFFIN, OH ............. 3,634,980 3,345,016 0 S/L 30 1980 (C) TOLEDO, OH ............. 951,927 12,122,405 0 S/L 31.5 1995 (A) TOLEDO, OHIO ........... 0 5,556,887 0 S/L 31.5 1997 (C) DENVER, CO ............. 206,292 43,177,182 0 S/L 31.5 1997 (C) DICKINSON, ND .......... 4,819,716 2,659,149 0 S/L 30 1978 (C) WEST PASCO, FL ......... 2,560,416 5,121,937 4,783,894 S/L 30 1986 (C) MARIANNA, FL ........... 852,017 4,281,620 0 S/L 31.5 1990 (C) HUTCHINSON, MN ......... 3,414,210 3,257,213 5,134,849 S/L 30 1981 (C) NEW BERN, NC ........... 2,523,962 9,522,344 5,392,642 S/L 31.5 1989 (C) MENTOR, OH ............. 486,148 846,795 0 S/L 31.5 1987 (C) STREETSBORO, OH ........ 469,108 1,141,150 0 S/L 25 1989 (C) AURORA, OH ............. 489,487 2,548,424 0 S/L 31.5 1988 (C) HIGHLAND, IN ........... 855,085 26,039,979 0 S/L 31.5 1997 (A) AHWATUKEE, AZ PHASE I .. 569,471 26,272,212 0 S/L 31.5 1997 (A) AHWATUKEE, AZ PHASE II . 873,505 41,322,333 0 S/L 31.5 1997 (A) PHOENIX, AR ............ 353,204 9,736,979 0 S/L 31.5 1997 (A) ARROWHEAD CROSSING ..... 34 2,501 0 S/L 31.5 1997 (A) PHOENIX, AR ............ 1,005,394 25,250,513 0 S/L 31.5 1997 (A) MAPLE GROVE, MN ........ 876,229 22,098,381 0 S/L 31.5 1997 (A) ST. PAUL, MN ........... 284,410 22,276,806 0 S/L 31.5 1997 (A) TANASBOURNE TWN CTR .... 696,291 21,306,064 0 S/L 31.5 1997 (A) EAGAN, MN .............. 302,088 26,697,270 0 S/L 31.5 1997 (A) FORT WORTH, TX ......... 551,985 23,179,276 0 S/L 31.5 1997 (A) RUSSELLVILLE, AR ....... 1,560,024 12,465,045 0 S/L 31.5 1994 (A) N. LITTLE ROCK, AR ..... 2,038,924 16,055,922 0 S/L 31.5 1994 (A) FAYETTEVILLE, AK ....... 25,098 11,844,161 0 S/L 31.5 1997 (A) OTTUMWA, IA ............ 2,412,145 6,667,011 0 S/L 31.5 1990 (C) WASHINGTON, NC ......... 864,177 4,753,958 0 S/L 31.5 1990 (C) OVIDEO, FL ............. 0 6,010,173 0 S/L 31.5 1997 (C) ORLANDO, FL ............ 3,348,143 13,277,174 0 S/L 31.5 1989 (C) DURHAM, NC ............. 2,704,828 11,469,981 0 S/L 31.5 1990 (C) CRYSTAL RIVER, FL ...... 2,454,996 4,946,223 0 S/L 30 1986 (C) TWINSBURG, OH (HBC) .... 425,221 1,236,775 0 S/L 31.5 1989 (C) Portfolio Balance (DDR). 773,184 29,687,971 0 ---------------------------------------- $171,737,359 $1,154,005,346 $89,675,698 ============ ============== ===========
(1) S/L refers to straight-line depreciation. F-24 68 (A) The Aggregate Cost for Federal Income Tax purposes was approximately $ 1,344.1 million at December 31, 1997 The changes in Total Real Estate Assets for the three years ended December 31, 1997 are as follows:
1997 1996 1995 ------------- ------------- ------------- BALANCE, BEGINNING OF YEAR $991,646,960 $848,373,336 $686,890,098 ACQUISITIONS 267,868,208 114,390,359 81,634,342 IMPROVEMENTS AND EXPANSIONS 78,701,065 64,199,411 84,884,431 CHANGES IN LAND UNDER DEVELOPMENT AND CONSTRUCTION IN PROGRESS (3,871,141) 9,557,168 2,405,064 SALES AND RETIREMENTS (8,602,387) (44,873,314) (7,440,599) ------------- ------------- ------------- BALANCE, END OF YEAR $1,325,742,705 $991,646,960 $848,373,336 ============== ============= =============
The changes in Accumulated Depreciation and Amortization for the three years ended December 31, 1997 are as follows:
1997 1996 1995 ------------- ------------- ------------- BALANCE, BEGINNING OF YEAR $142,039,284 $120,040,503 $100,051,018 DEPRECIATION FOR YEAR 32,208,290 24,872,181 21,838,209 SALES AND RETIREMENTS (2,510,215) (2,873,400) (1,848,724) ------------- ------------- ------------- BALANCE, END OF YEAR $171,737,359 $142,039,284 $120,040,503 ============= ============= =============
F-25 EX-4.22 2 EXHIBIT 4.22 1 Exhibit 4.22 AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF FEBRUARY 24, 1998 AMONG DEVELOPERS DIVERSIFIED REALTY CORPORATION, AS BORROWER AND THE FIRST NATIONAL BANK OF CHICAGO, AS ADMINISTRATIVE AGENT AND BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, COMMERZBANK AKTIENGESELLSCHAFT, FLEET NATIONAL BANK, UNION BANK OF SWITZERLAND, NEW YORK BRANCH, AMSOUTH BANK, AS CO-AGENTS AND THE SEVERAL LENDERS FROM TIME TO TIME PARTIES HERETO, AS LENDERS 2 TABLE OF CONTENTS ----------------- PAGE ---- ARTICLE I DEFINITIONS....................................................... 1 ARTICLE II THE CREDIT....................................................... 20 2.1. Commitments; Reduction in Aggregate Commitment.................... 20 2.2. Final Principal Payment........................................... 21 2.3. Ratable and Nonratable Loans...................................... 21 2.4. Applicable Margins................................................ 21 2.6. Other Fees........................................................ 22 2.7. Minimum Amount of Each Advance.................................... 22 2.8. Optional Principal Payments....................................... 22 2.9. Method of Selecting Types and Interest Periods for New Advances... 22 2.10. Conversion and Continuation of Outstanding Advances............... 23 2.11. Changes in Interest Rate, Etc..................................... 24 2.12. Rates Applicable After Default.................................... 24 2.13. Method of Payment................................................. 25 2.14. Notes; Telephonic Notices......................................... 25 2.15. Interest Payment Dates; Interest and Fee Basis.................... 26 2.16. Notification of Advances, Interest Rates and Prepayments.......... 26 2.17. Lending Installations............................................. 26 2.18. Non-Receipt of Funds by the Administrative Agent.................. 26 2.19. Withholding Tax Exemption......................................... 27 2.20. Replacement of Lenders under Certain Circumstances................ 27 2.21. Swingline Loans................................................... 28 2.22. Competitive Bid Loans............................................. 29 2.23. Agent Administered Competitive Bid Loans.......................... 30 2.24. Competitive Bid Loans Administered by Borrower.................... 34 2.25. Application of Moneys Received.................................... 37 2.26. Usury. .......................................................... 37 ARTICLE III CHANGE IN CIRCUMSTANCES......................................... 38 3.1. Yield Protection.................................................. 38 3.2. Changes in Capital Adequacy Regulations........................... 39 3.3. Availability of Types of Advances................................. 39 3.4. Funding Indemnification........................................... 39 3.5. Lender Statements; Survival of Indemnity.......................... 40 ARTICLE IV CONDITIONS PRECEDENT............................................. 40 4.1. Initial Advance................................................... 40 4.2. Each Advance...................................................... 42 ARTICLE V REPRESENTATIONS AND WARRANTIES.................................... 43 -i- 3 TABLE OF CONTENTS ----------------- (CONTINUED) PAGE ---- 5.1. Existence. ..................................................... 43 5.2. Authorization and Validity....................................... 43 5.3. No Conflict; Government Consent.................................. 43 5.4. Financial Statements; Material Adverse Change.................... 44 5.5. Taxes............................................................ 44 5.6. Litigation and Guarantee Obligations............................. 44 5.7. Subsidiaries..................................................... 44 5.8. ERISA............................................................ 45 5.9. Accuracy of Information.......................................... 45 5.10. Regulation U..................................................... 45 5.11. Material Agreements.............................................. 45 5.12. Compliance With Laws............................................. 45 5.13. Ownership of Properties.......................................... 46 5.14. Investment Company Act........................................... 46 5.15. Public Utility Holding Company Act............................... 46 5.16. Solvency......................................................... 46 5.17. Insurance........................................................ 46 5.18. REIT Status...................................................... 47 5.19. Environmental Matters............................................ 47 5.20. Unencumbered Assets.............................................. 48 ARTICLE VI COVENANTS....................................................... 50 6.1. Financial Reporting.............................................. 50 6.2. Use of Proceeds.................................................. 52 6.3. Notice of Default................................................ 53 6.4. Conduct of Business.............................................. 53 6.5. Taxes............................................................ 53 6.6. Insurance........................................................ 53 6.7. Compliance with Laws............................................. 53 6.8. Maintenance of Properties........................................ 53 6.9. Inspection....................................................... 53 6.10. Maintenance of Status............................................ 54 6.11. Dividends........................................................ 54 6.12. Merger; Sale of Assets........................................... 54 6.13. Delivery of Subsidiary Guaranties................................ 54 6.14. Sale and Leaseback............................................... 54 6.15. Acquisitions and Investments..................................... 54 6.16. Liens............................................................ 55 6.17. Affiliates....................................................... 56 6.18. Financial Undertakings........................................... 56 6.19. Variable Interest Indebtedness................................... 56 -ii- 4 TABLE OF CONTENTS ----------------- (CONTINUED) PAGE ---- 6.20. Consolidated Net Worth............................................ 56 6.21. Indebtedness and Cash Flow Covenants.............................. 57 6.22. Environmental Matters............................................. 57 ARTICLE VII DEFAULTS........................................................ 58 ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES................. 61 8.1. Acceleration..................................................... 61 8.2. Amendments....................................................... 61 8.3. Preservation of Rights........................................... 62 ARTICLE IX GENERAL PROVISIONS............................................... 62 9.1. Survival of Representations...................................... 62 9.2. Governmental Regulation.......................................... 62 9.3. Taxes............................................................ 63 9.4. Headings......................................................... 63 9.5. Entire Agreement................................................. 63 9.6. Several Obligations; Benefits of this Agreement.................. 63 9.7. Expenses; Indemnification........................................ 63 9.8. Numbers of Documents............................................. 64 9.9. Accounting....................................................... 64 9.10. Severability of Provisions....................................... 64 9.11. Nonliability of Lenders.......................................... 64 9.12. CHOICE OF LAW.................................................... 64 9.13. CONSENT TO JURISDICTION.......................................... 64 9.14. WAIVER OF JURY TRIAL............................................. 65 ARTICLE X THE ADMINISTRATIVE AGENT.......................................... 65 10.1. Appointment...................................................... 65 10.2. Powers........................................................... 65 10.3. General Immunity................................................. 65 10.4. No Responsibility for Loans, Recitals, etc....................... 66 10.5. Action on Instructions of Lenders................................ 66 10.6. Employment of Agents and Counsel................................. 66 10.7. Reliance on Documents; Counsel................................... 66 10.8. Administrative Agent's Reimbursement and Indemnification......... 67 10.9. Rights as a Lender............................................... 67 10.10. Lender Credit Decision........................................... 68 10.11. Successor Administrative Agent................................... 68 -iii- 5 AMENDED AND RESTATED CREDIT AGREEMENT This Amended and Restated Credit Agreement, dated as of February 24, 1998, is among Developers Diversified Realty Corporation, a corporation organized under the laws of the State of Ohio (the"BORROWER"), The First National Bank of Chicago, a national banking association, and the several banks, financial institutions and other entities from time to time parties to this Agreement (collectively, the "LENDERS"), The First National Bank of Chicago, not individually, but as "ADMINISTRATIVE AGENT" and Bank of America National Trust & Savings Association, Commerzbank Aktiengesellschaft, Fleet National Bank, Union Bank of Switzerland, New York Branch and AmSouth Bank, not individually but as "CO-AGENTS". RECITALS A. The Borrower is primarily engaged in the business of purchasing, developing, owning, operating, leasing and managing retail, office and industrial properties. B. The Borrower is listed on the New York Stock Exchange and is qualified as a real estate investment trust. C. The Borrower has requested that the Lenders make loans available to the Borrower pursuant to the terms of this Agreement, and that the Administrative Agent act as administrative agent for the Lenders. The Administrative Agent and the Lenders have agreed to do so. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS ----------- As used in this Agreement: "ABR Applicable Margin" means, as of any date, the Applicable Margin in effect on such date with respect to Floating Rate Advances and Floating Rate Loans. "Absolute Interest Period" means, with respect to a Competitive Bid Loan made at an Absolute Rate, a period of up to 180 days as requested by Borrower and confirmed by a Lender but in no event extending beyond the Facility Termination Date. If an Absolute Interest Period would end on a day which is not a Business Day, such Absolute Interest Period shall end on the next succeeding Business Day. 6 "Absolute Rate" means a fixed rate of interest (rounded to the nearest 1/100 of 1%) for an Absolute Interest Period with respect to a Competitive Bid Loan offered by a Lender and accepted by the Borrower at such rate. "Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding partnership interests of a partnership. "Administrative Agent" means The First National Bank of Chicago in its capacity as agent for the Lenders pursuant to ARTICLE X, and not in its individual capacity as a Lender, and any successor Administrative Agent appointed pursuant to ARTICLE X. "Advance" means a borrowing hereunder consisting of the aggregate amount of the several Loans (including without limitation Competitive Bid Loans and Swingline Loans) made by one or more of the Lenders to the Borrower of the same Type and, in the case of Fixed Rate Advances, for the same Interest Period. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Aggregate Commitment" means, as of any date, the aggregate of the then-current Commitments of all the Lenders, which is, as of the Agreement Execution Date, $250,000,000, subject to increases or decreases as provided in SECTION 2.1 hereof. "Agreement" means this Amended and Restated Credit Agreement, as it may be amended or modified and in effect from time to time. "Agreement Execution Date" means the date this Agreement has been fully executed and delivered by all parties hereto. "Alternate Base Rate" means, for any day, a rate of interest per annum equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum of Federal Funds Effective Rate for such day plus 1/2% per annum. -2- 7 "Applicable Margin" means the applicable margin set forth in the table in SECTION 2.4 used in calculating the interest rate applicable to the various Types of Advances, which shall vary from time to time in accordance with Borrower's long term unsecured debt ratings. "Arranger" means First Chicago Capital Markets, Inc. "Article" means an article of this Agreement unless another document is specifically referenced. "Assessment Rate" means, for any CD Interest Period, the assessment rate per annum (rounded upwards to the next higher multiple of 1/100 of 1% if the rate is not such a multiple) payable to the Federal Deposit Insurance Corporation (or any successor) by a member of the Bank Insurance Fund which is classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. ss.327.3(e) (or any successor provision) for the insurance of time deposits at the offices of such institution in the United States, as estimated by First Chicago on the first day of such CD Interest Period. "Assets Under Development" means, as of any date of determination, all Projects and expansion areas of existing Projects owned by the Consolidated Group and the Investment Affiliates which are then treated as assets under development under GAAP and which have been designated by the Borrower as "Assets Under Development" in its most recent compliance certificate, both such land and improvements under construction to be valued for purposes of this Agreement at (i) 100% of then-current book value, as determined in accordance with GAAP, for those Assets Under Development owned by members of the Consolidated Group and (ii) the applicable Consolidated Group Pro Rata Share of then-current book value, as determined in accordance with GAAP, for each Asset Under Development owned by an Investment Affiliate; provided, however, in no event shall Assets Under Development include (x) any Project or any expansion area of an existing Project for more than 365 days or (y) with respect to Projects owned by Investment Affiliates, any Project or expansion area of an existing Project which is encumbered by a First Mortgage Receivable as designated by the Borrower. "Authorized Officer" means any of the President and Chief Executive Officer, Executive Vice President and Chief Operating Officer, Vice President and Chief Financial Officer or Vice President and General Counsel of the Borrower, acting singly. "Borrower" means Developers Diversified Realty Corporation, a corporation organized under the laws of the State of Ohio, and its successors and assigns. "Borrowing Date" means a date on which an Advance is made hereunder. "Borrowing Notice" is defined in SECTION 2.9. -3- 8 "Business Day" means (i) with respect to any borrowing, payment or rate selection of LIBOR Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago, Illinois and New York, New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago, Illinois and New York, New York for the conduct of substantially all of their commercial lending activities. "Capital Stock" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person which is not a corporation and any and all warrants or options to purchase any of the foregoing. "Capitalized Lease" of a Person means any lease of Property imposing obligations on such Person, as lessee thereunder, which are required in accordance with GAAP to be capitalized on a balance sheet of such Person. "Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP. "Cash Equivalents" means, as of any date: (i) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof having maturities of not more than one year from such date; (ii) mutual funds organized under the United States Investment Company Act rated AAm or AAm-G by S&P, P-1 by Moody's and A by Fitch; (iii) certificates of deposit or other interest-bearing obligations of a bank or trust company which is a member in good standing of the Federal Reserve System having a short term unsecured debt rating of not less than A-1 by S&P, not less than P-1 by Moody's and F-1 by Fitch (or in each case, if no bank or trust company is so rated, the highest comparable rating then given to any bank or trust company, but in such case only for funds invested overnight or over a weekend) provided that such investments shall mature or be redeemable upon the option of the holders thereof on or prior to a date one month from the date of their purchase; (iv) certificates of deposit or other interest-bearing obligations of a bank or trust company which is a member in good standing of the Federal Reserve System having a short term unsecured debt rating of not less -4- 9 than A-1+ by S&P, and not less than P-1 by Moody's and which has a long term unsecured debt rating of not less than A1 by Moody's (or in each case, if no bank or trust company is so rated, the highest comparable rating then given to any bank or trust company, but in such case only for funds invested overnight or over a weekend) provided that such investments shall mature or be redeemable upon the option of the holders thereof on or prior to a date three months from the date of their purchase; (v) bonds or other obligations having a short term unsecured debt rating of not less than A-1+ by S&P and P-1+ by Moody's and having a long term debt rating of not less than A1 by Moody's issued by or by authority of any state of the United States, any territory or possession of the United States, including the Commonwealth of Puerto Rico and agencies thereof, or any political subdivision of any of the foregoing; (vi) repurchase agreements issued by an entity rated not less than A-1+ by S&P, and not less than P-1 by Moody's which are secured by U.S. Government securities of the type described in clause (i) of this definition maturing on or prior to a date one month from the date the repurchase agreement is entered into; (vii) short term promissory notes rated not less than A-1+ by S&P, and not less than P-1 by Moody's maturing or to be redeemable upon the option of the holders thereof on or prior to a date one month from the date of their purchase; and (viii) commercial paper (having original maturities of not more than 365 days) rated at least A-1+ by S&P and P-1 by Moody's and issued by a foreign or domestic issuer who, at the time of the investment, has outstanding long-term unsecured debt obligations rated at least A1 by Moody's. "CD Applicable Margin" means, as of any date with respect to any CD Interest Period, the Applicable Margin in effect for such CD Interest Period as determined in accordance with SECTION 2.4 hereof. "CD Interest Period" means, with respect to a Fixed CD Rate Advance, a period of 30, 60, 90 or 180 days commencing on a Business Day selected by the Borrower pursuant to this Agreement. If such CD Interest Period would end on a day which is not a Business Day, such CD Interest Period shall end on the next succeeding Business Day. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. -5- 10 "Commitment" means, for each Lender, the obligation of such Lender to make Loans not exceeding the amount set forth opposite its signature below or as set forth in any Notice of Assignment relating to any assignment that has become effective pursuant to SECTION 12.3.2, as such amount may be modified from time to time pursuant to the terms hereof. "Competitive Bid Borrowing Notice" is defined in SECTION 2.23(e). "Competitive Bid Lender" means a Lender which has a Competitive Bid Loan outstanding. "Competitive Bid Loan" is a Loan made pursuant to SECTION 2.22 hereof. "Competitive Bid Note" means the promissory note payable to the order of each Lender in the form attached hereto as EXHIBIT H to be used to evidence any Competitive Bid Loans which such Lender elects to make (collectively, the "Competitive Bid Notes"). "Competitive Bid Quote" means a response submitted by a Lender to the Administrative Agent or the Borrower, as the case may be with respect to an Invitation for Competitive Bid Quotes in the form attached as EXHIBIT I-3 or J-2. "Competitive Bid Quote Request" means a written request from Borrower to Administrative Agent in the form attached as EXHIBIT I-1. "Competitive LIBOR Margin" means, with respect to any Competitive Bid Loan for a LIBOR Interest Period, the percentage established in the applicable Competitive Bid Quote which is to be used to determine the interest rate applicable to such Competitive Bid Loan. "Condemnation" is defined in SECTION 7.8. "Consolidated Capitalization Value" means, as of any date, an amount equal to the sum of (i) Consolidated Cash Flow for the most recent period of two consecutive fiscal quarters for which the Borrower has reported results (excluding any portion of Consolidated Cash Flow attributable to (A) Assets Under Development, (B) Projects owned by Investment Affiliates which are encumbered by First Mortgage Receivables, and (C) Projects acquired by the Borrower or its Subsidiaries during such period) MULTIPLIED BY 2, and DIVIDED BY 0.095 PLUS (ii) with respect to each Project so acquired by the Borrower or its Subsidiaries during such period, the Borrower's estimated annual Net Operating Income for such Project based on leases in existence at the date of such acquisition DIVIDED BY 0.095. "Consolidated Cash Flow" means, for any period, an amount equal to (a) Funds From Operations for such period PLUS (b) Consolidated Interest Expense for such period. -6- 11 "Consolidated Debt Service" means, for any period, without duplication, (a) Consolidated Interest Expense for such period PLUS (b) the aggregate amount of scheduled principal payments attributable to Consolidated Outstanding Indebtedness (excluding optional prepayments and scheduled principal payments in respect of any such Indebtedness which is not amortized through equal periodic installments of principal and interest over the term of such Indebtedness) required to be made during such period by any member of the Consolidated Group PLUS (c) a percentage of all such scheduled principal payments required to be made during such period by any Investment Affiliate on Indebtedness taken into account in calculating Consolidated Interest Expense, equal to the greater of (x) the percentage of the principal amount of such Indebtedness for which any member of the Consolidated Group is liable and (y) the Consolidated Group Pro Rata Share of such Investment Affiliate. "Consolidated Group" means the Borrower and all Subsidiaries which are consolidated with it for financial reporting purposes under GAAP. "Consolidated Group Pro Rata Share" means, with respect to any Investment Affiliate, the percentage of the total equity ownership interests held by the Consolidated Group in the aggregate, in such Investment Affiliate, determined by calculating the greater of (i) the percentage of the issued and outstanding stock, partnership interests or membership interests in such Investment Affiliate held by the Consolidated Group in the aggregate and (ii) the percentage of the total book value of such Investment Affiliate that would be received by the Consolidated Group in the aggregate, upon liquidation of such Investment Affiliate after repayment in full of all Indebtedness of such Investment Affiliate. "Consolidated Interest Expense" means, for any period without duplication, the sum of (a) the amount of interest expense, determined in accordance with GAAP, of the Consolidated Group for such period attributable to Consolidated Outstanding Indebtedness during such period plus (b) the Consolidated Group Pro Rata Share of any interest expense, determined in accordance with GAAP, of any Investment Affiliate, for such period, whether recourse or non-recourse less (c) with respect to each consolidated Subsidiary of the Borrower in which the Borrower does not directly or indirectly hold a 100% ownership interest, a percentage of the interest expense attributable to such consolidated Subsidiary which is included under clause (a) of this definition and which is not related to Indebtedness which is a Guarantee Obligation of the Borrower equal to the percentage ownership in such consolidated Subsidiary which is not held either (i) directly or indirectly by the Borrower, or (ii) by holders of operating partnership units in such consolidated Subsidiary which are convertible into stock of the Borrower. "Consolidated Market Value" means, as of any date, an amount equal to the sum of (a) the Consolidated Capitalization Value as of such date, PLUS (b) the value of Unrestricted Cash and Cash Equivalents, PLUS (c) the lesser of (i) the value of Assets Under Development, or (ii) ten percent (10%) of the Consolidated Capitalization Value PLUS (d) the lesser of -7- 12 (i) 100% of the then-current value under GAAP of all First Mortgage Receivables or (ii) five percent (5%) of the Consolidated Capitalization Value. "Consolidated Net Income" means, for any period, consolidated net income (or loss) of the Consolidated Group for such period determined on a consolidated basis in accordance with GAAP; PLUS that portion of any amount deducted as minority equity interest in calculating such consolidated net income which is attributable to minority interest holders holding operating partnership units in a member of the Consolidated Group which are convertible into stock in the Borrower, but PROVIDED that there shall be excluded (a) the income (or deficit) of any other Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries and (b) the undistributed earnings of any Subsidiary which has not furnished a Subsidiary Guaranty to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any contractual obligation or requirement of law applicable to such Subsidiary. "Consolidated Net Worth" means, as of any date of determination, an amount equal to (a) Consolidated Market Value MINUS (b) Consolidated Outstanding Indebtedness as of such date. "Consolidated Outstanding Indebtedness" means, as of any date of determination, without duplication, the sum of (a) all Indebtedness of the Consolidated Group outstanding at such date, determined on a consolidated basis in accordance with GAAP, plus (b) the applicable Consolidated Group Pro Rata Share of any Indebtedness of each Investment Affiliate other than Indebtedness of such Investment Affiliate to a member of the Consolidated Group, less (c) with respect to each consolidated Subsidiary of the Borrower in which the Borrower does not directly or indirectly hold a 100% ownership interest, a percentage of any Indebtedness of such consolidated Subsidiary which is not a Guarantee Obligation of the Borrower equal to the percentage ownership interest in such consolidated Subsidiary which is not held directly or indirectly by the Borrower. "Consolidated Secured Indebtedness" means, as of any date of determination, without duplication, the sum of (a) the aggregate principal amount of that portion of the Consolidated Outstanding Indebtedness which is secured by any Lien on the Property of Borrower or its Subsidiaries, without regard to recourse, plus (b) the excess, if any, over $5,000,000, of the sum of (x) the aggregate principal amount of all Senior Unsecured Indebtedness of the Subsidiaries of the Borrower which have not furnished Subsidiary Guaranties, determined on a consolidated basis in accordance with GAAP and (y) a percentage of the aggregate principal amount of all Indebtedness of each Investment Affiliate equal to the greater of (x) the percentage of such Indebtedness for which any member of the Consolidated Group is liable and (z) the Consolidated Group Pro Rata Share of such Investment Affiliate. "Consolidated Senior Unsecured Indebtedness" means, as of any date of determination, the aggregate principal amount of all Senior Unsecured Indebtedness of the -8- 13 Consolidated Group outstanding at such date, including without limitation all the outstanding Indebtedness under this Agreement as of such date, determined on a consolidated basis in accordance with GAAP. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Conversion/Continuation Notice" is defined in SECTION 2.10. "Corporate Base Rate" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as such corporate base rate changes. "Default" means an event described in Article VII. "Designated Lender" means any Person who has been designated by a Lender to fund Competitive Bid Loans pursuant to a Designation Agreement in the form attached hereto as EXHIBIT L. "Duff & Phelps" means Duff & Phelps, Inc. and its successors. "Environmental Laws" means any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect, in each case to the extent the foregoing are applicable to the Borrower or any Subsidiary or any of their respective assets or Projects. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "Equity Value" means, with respect to a Subsidiary owned as of the Agreement Execution Date or owned and in operation for a period of two or more consecutive full fiscal quarters after the Agreement Execution Date, by the Borrower or one of its other Subsidiaries, an amount equal to (A) the product of (i) the sum of net income (or loss) for the most recent two consecutive fiscal quarters without giving effect to depreciation and amortization, gains or losses from extraordinary items, gains or losses on sales of real estate, and gains or losses on investments in marketable securities for such period, PLUS the amount of interest expense for such period on the aggregate principal amount of the Indebtedness of such Subsidiary, MULTIPLIED BY (ii) 2, DIVIDED BY (B) 0.095, and then MINUS (C) Indebtedness of the Subsidiary as of the date of determination. For any Subsidiary formed or purchased -9- 14 after the Agreement Execution Date, until it or its Properties have been owned and operated by the Borrower or one of its other Subsidiaries for two or more consecutive full fiscal quarters, "Equity Value" shall mean the Borrower's estimated annual Net Operating Income for the Projects owned by such Subsidiary based on leases in existence at the date such Subsidiary is formed or purchased DIVIDED by 0.095, and then MINUS the Indebtedness of such Subsidiary as of the date of determination. "Facility Fee" is defined in SECTION 2.5. "Facility Fee Rate" is, as of any date, the percentage established in accordance with the terms of SECTION 2.4. "Facility Termination Date" means April 30, 2001. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10 a.m. (Chicago time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion. "Financeable Ground Lease" means, a ground lease satisfactory to the Required Lenders and the Administrative Agent's counsel in their reasonable discretion, which must provide protections for a potential leasehold mortgagee ("MORTGAGEE") which include, among other things (i) a remaining term, including any optional extension terms exercisable unilaterally by the tenant, of no less than 25 years from the Agreement Execution Date, (ii) that the ground lease will not be terminated until the Mortgagee has received notice of a default, has had a reasonable opportunity to cure or complete foreclosure, and has failed to do so, (iii) provision for a new lease on the same terms to the Mortgagee as tenant if the ground lease is terminated for any reason, (iv) non-merger of the fee and leasehold estates, (v) transferability of the tenant's interest under the ground lease without any requirement for consent of the ground lessor unless based on reasonable objective criteria as to the creditworthiness of the transferee or delivery of customary assignment and assumption agreements from the transferor and transferee, and (vi) that insurance proceeds and condemnation awards (from the fee interest as well as the leasehold interest) will be applied pursuant to the terms of the applicable leasehold mortgage. "Financial Undertaking" of a Person means (i) any transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheet of such Person, or (ii) any agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, -10- 15 exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options. "First Mortgage Receivable" means any Indebtedness owing to a member of the Consolidated Group which is secured by a first-priority mortgage or deed of trust on commercial real estate having a value in excess of the amount of such Indebtedness and which has been designated by the Borrower as a "First Mortgage Receivable" in its most recent compliance certificate. "First Chicago" means The First National Bank of Chicago in its individual capacity, and its successors. "Fitch" means Fitch Investor Services, Inc. and its successors. "Fixed CD Base Rate" means, with respect to a Fixed CD Rate Advance for the relevant CD Interest Period, the rate determined by the Administrative Agent to be the arithmetic average of the prevailing bid rates quoted to the Administrative Agent at or before 10 a.m. (Chicago time) on the first day of such CD Interest Period by three New York or Chicago certificate of deposit dealers of recognized standing selected by the Administrative Agent in its sole discretion for the purchase at face value of certificates of deposit of First Chicago in the approximate amount of First Chicago's relevant Fixed CD Rate Loan and having a maturity approximately equal to such CD Interest Period. "Fixed CD Rate" means, with respect to a Fixed CD Rate Advance for the relevant CD Interest Period, a rate per annum equal to the sum of (i) the quotient of (a) the Fixed CD Base Rate applicable to such CD Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such CD Interest Period, plus (ii) the Assessment Rate applicable to such CD Interest Period, plus (iii) the CD Applicable Margin in effect on the day that such Fixed CD Base Rate was determined. The Fixed CD Rate shall be rounded to the next higher multiple of 1/100 of 1% if the rate is not such a multiple. "Fixed CD Rate Advance" means an Advance which bears interest at a Fixed CD Rate. "Fixed CD Rate Loan" means a Loan which bears interest at a Fixed CD Rate. "Fixed Rate" means the Fixed CD Rate, the Absolute Rate or the LIBOR Rate. "Fixed Rate Advance" means an Advance which bears interest at a Fixed Rate. "Fixed Rate Loan" means a Loan which bears interest at a Fixed Rate. -11- 16 "Floating Rate" means, for any day, a rate per annum equal to (i) the Alternate Base Rate for such day plus (ii) ABR Applicable Margin for such day, in each case changing when and as the Alternate Base Rate changes. "Floating Rate Advance" means an Advance which bears interest at the Floating Rate. "Floating Rate Loan" means a Loan which bears interest at the Floating Rate. "Funded Percentage" means, with respect to any Lender at any time, a percentage equal to a fraction the numerator of which is the amount actually disbursed and outstanding to Borrower by such Lender at such time (including Swingline Loans and Competitive Bid Loans), and the denominator of which is the total amount disbursed and outstanding to Borrower by all of the Lenders at such time (including Swingline Loans and Competitive Bid Loans). "Funds From Operations" means, for any period, the sum of (i) Consolidated Net Income for such period, excluding (A) gains (losses) on sales of property, (B) non-recurring charges and extraordinary items, and (C) non-cash charges (including, without limitation, depreciation and amortization, and equity gains (losses) from each Investment Affiliate included therein, but excluding any amortization of deferred finance costs), PLUS (ii) the applicable Consolidated Group Pro Rata Share of funds from operations of each Investment Affiliate that is due to the Consolidated Group for such period, all determined on a consistent basis. With regard to the foregoing sentence, for each consolidated Subsidiary of the Borrower in which the Borrower does not directly or indirectly hold a 100% ownership interest, each of clauses (A), (B) and (C) shall exclude the portion of such item attributable to minority interest holders which do not hold operating partnership units convertible to stock in the Borrower. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in SECTION 6.1. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee Obligation" means, as to any Person (the "GUARANTEEING PERSON"), any obligation (determined without duplication) of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any Letter of Credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counter-indemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to -12- 17 purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the maximum stated amount of the primary obligation relating to such Guarantee Obligation (or, if less, the maximum stated liability set forth in the instrument embodying such Guarantee Obligation), PROVIDED, that in the absence of any such stated amount or stated liability, the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "Indebtedness" of any Person at any date means without duplication, (a) all indebtedness of such Person for borrowed money including without limitation any repurchase obligation or liability of such Person with respect to securities, accounts or notes receivable sold by such Person, (b) all obligations of such Person for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), to the extent such obligations constitute indebtedness for the purposes of GAAP, (c) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (d) all Capitalized Lease Obligations, (e) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (f) all Guarantee Obligations of such Person (excluding in any calculation of consolidated Indebtedness of the Consolidated Group , Guarantee Obligations of one member of the Consolidated Group in respect of primary obligations of any other member of the Consolidated Group), (g) all reimbursement obligations of such Person for letters of credit and other contingent liabilities, and (h) all liabilities secured by any lien (other than liens for taxes not yet due and payable) on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Interest Period" means an Absolute Interest Period, a CD Interest Period or a LIBOR Interest Period. "Investment" of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade), deposit account or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, -13- 18 partnership interests, notes, debentures or other securities of any other Person made by such Person. "Investment Affiliate" means any Person in which the Consolidated Group, directly or indirectly, has an ownership interest, whose financial results are not consolidated under GAAP with the financial results of the Consolidated Group. "Invitation for Competitive Bid Quotes" means a written notice to the Lenders from the Administrative Agent in the form attached as EXHIBIT I-2 for Competitive Bid Loans made pursuant to SECTION 2.23, and a written notice to the Lenders from the Borrower in the form of EXHIBIT J-1 for Competitive Bid Loans made pursuant to SECTION 2.24. "Lenders" means the lending institutions listed on the signature pages of this Agreement, their respective successors and assigns and any other lending institutions that subsequently become parties to this Agreement. "Lending Installation" means, with respect to a Lender, any office, branch, subsidiary or affiliate of such Lender. "Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "LIBOR Advance" means an Advance that bears interest at the LIBOR Rate, whether a ratable Advance based on the LIBOR Applicable Margin or a Competitive Bid Loan based on a Competitive LIBOR Margin. "LIBOR Applicable Margin" means, as of any date with respect to any LIBOR Interest Period, the Applicable Margin in effect for such LIBOR Interest Period as determined in accordance with SECTION 2.4 hereof. "LIBOR Base Rate" means, with respect to a LIBOR Advance for the relevant LIBOR Interest Period, the rate determined by the Administrative Agent to be the rate at which deposits in U.S. dollars are offered by First Chicago to first-class banks in the London interbank market at approximately 11 a.m. (London time) two Business Days prior to the first day of such LIBOR Interest Period, in the approximate amount of First Chicago's share of the relevant LIBOR Advance and having a maturity approximately equal to such LIBOR Interest Period. "LIBOR Interest Period" means a period of one, two, three or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such LIBOR Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, -14- 19 such LIBOR Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If a LIBOR Interest Period would otherwise end on a day which is not a Business Day, such LIBOR Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such LIBOR Interest Period shall end on the immediately preceding Business Day. "LIBOR Loan" means a Loan which bears interest at a LIBOR Rate. "LIBOR Rate" means, with respect to a LIBOR Advance for the relevant LIBOR Interest Period, the sum of (i) the quotient of (a) the LIBOR Base Rate applicable to such LIBOR Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such LIBOR Interest Period, plus (ii) in the case of ratable LIBOR Advances, the LIBOR Applicable Margin in effect from time to time during such LIBOR Interest Period, or in the case of LIBOR Advances made as Competitive Bid Loans, the Competitive LIBOR Margin established in the Competitive Bid Quote applicable to such Competitive Bid Loan. The LIBOR Rate shall be rounded to the next higher 1/100 of 1% if the rate is not a multiple of 1/100 of 1%. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan" means, with respect to a Lender, such Lender's portion of any Advance. "Loan Documents" means this Agreement, the Notes, the Subsidiary Guaranty, and any other document from time to time evidencing or securing indebtedness incurred by the Borrower under this Agreement, as any of the foregoing may be amended or modified from time to time. "Material Adverse Effect" means a material adverse effect on (i) the business, Property or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower to perform its obligations under the Loan Documents, or (iii) the validity or enforceability of any of the Loan Documents. "Materials of Environmental Concern" means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea- formaldehyde insulation. "Maximum Legal Rate" means the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received -15- 20 on the indebtedness evidenced by the Note and as provided for herein or in the Note or other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "Moody's" means Moody's Investors Service, Inc. and its successors. "Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions. "Net Operating Income" means, with respect to any Project for any period, "property rental and other income" (as determined by GAAP) attributable to such Project accruing for such period MINUS the amount of all expenses (as determined in accordance with GAAP) incurred in connection with and directly attributable to the ownership and operation of such Project for such period, including, without limitation, Management Fees and amounts accrued for the payment of real estate taxes and insurance premiums, but excluding interest expense or other debt service charges and any non-cash charges such as depreciation or amortization of financing costs. As used herein "Management Fees", means, with respect to each Project for any period, an amount equal to (i) three percent (3%) of the aggregate base rent and percentage rent due and payable under leases with anchor tenants at such Project, PLUS (ii) five percent (5%) of the aggregate base rent and percentage rent due and payable under leases with tenants other than anchor tenants at such Project. "Note" means a promissory note, in substantially the form of EXHIBIT A hereto, duly executed by the Borrower and payable to the order of a Lender in the amount of its Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Notice of Assignment" is defined in SECTION 12.3.2. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lenders or to any Lender, the Administrative Agent or any indemnified party hereunder arising under the Loan Documents. "Participants" is defined in SECTION 12.2.1. "Payment Date" means, with respect to the payment of interest accrued on any Advance, the first day of each calendar month. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "Percentage" means for each Lender the ratio that such Lender's Commitment bears to the Aggregate Commitment, expressed as a percentage. -16- 21 "Permitted Acquisitions" are defined in SECTION 6.15. "Permitted Liens" are defined in SECTION 6.16. "Person" means any natural person, corporation, firm, joint venture, partnership, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. "Prior Agreement" means that certain Credit Agreement dated as of May 1, 1995 among Borrower, First Chicago and certain lenders, as amended. "Project" means any real estate asset owned by Borrower or any of its Subsidiaries or any Investment Affiliate, and operated or intended to be operated as a retail, office or industrial property. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Purchasers" is defined in SECTION 12.3.1. "Recourse Indebtedness" means any Indebtedness of Borrower or any of its Subsidiaries with respect to which the liability of the obligor is not limited to the obligor's interest in specified assets securing such Indebtedness, subject to customary limited exceptions for certain acts or types of liability. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) -17- 22 of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Required Lenders" means Lenders in the aggregate having at least 66 2/3% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 66 2/3% of the aggregate unpaid principal amount of the outstanding Advances. "Reserve Requirement" means, with respect to a CD Interest Period or a LIBOR Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on new non-personal time deposits of $100,000 or more with a maturity equal to that of such CD Interest Period (in the case of Fixed CD Rate Advances) or on Eurocurrency liabilities (in the case of LIBOR Advances). "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Senior Unsecured Indebtedness" means all Indebtedness other than Subordinated Indebtedness of any Person that is not secured by a Lien on any asset of such Person. "Single Employer Plan" means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. "S&P" means Standard & Poor's Ratings Group and its successors. "Subordinated Indebtedness" means Indebtedness which is contractually subordinated to the Obligations on terms reasonably acceptable to the Administrative Agent, including, without limitation, the Borrower's 7% Convertible Subordinated Debentures Due 1999. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. -18- 23 "Subsidiary Guarantor" means each Subsidiary of the Borrower which is a party to the Subsidiary Guaranty. "Subsidiary Guaranty" means the Guaranty to be executed and delivered by each Subsidiary of the Borrower, substantially in the form of EXHIBIT F, as the same may be amended, supplemented or otherwise modified from time to time. "Substantial Portion" means, with respect to the Property of the Borrower and its Subsidiaries, Property which (i) represents more than 10% of the assets of the Consolidated Group as would be shown in the consolidated financial statements of the Consolidated Group as at the beginning of the twelve-month period ending with the month in which such determination is made, or (ii) is responsible for more than 10% of the consolidated net sales or of the consolidated net income of the Consolidated Group as reflected in the financial statements referred to in clause (i) above. "Swingline Advances" means, as of any date, collectively, all Swingline Loans then outstanding under this Facility. "Swingline Lender" shall mean Administrative Agent, in its capacity as a Lender. "Swingline Loans" means loans of up to $10,000,000 made by the Swingline Lender in accordance with SECTION 2.21 hereof. "Transferee" is defined in SECTION 12.4. "Type" means, with respect to any Advance, its nature as a Floating Rate Advance, LIBOR Advance or Fixed CD Rate Advance. "Unencumbered Asset" means, with respect to any Project located in the United States 100% of which is owned in fee simple or ground leased by the Borrower or a Subsidiary Guarantor (provided that a Project which is ground leased shall be included as an Unencumbered Asset only if such ground lease is a Financeable Ground Lease) which, as of any date of determination, (a) is not subject to any Liens or claims (including restrictions on transferability or assignability) of any kind (including any such Lien, claim or restriction imposed by the organizational documents of any Subsidiary Guarantor) other than Permitted Liens set forth in SECTIONS 6.16(i) THROUGH 6.16(iv)), (b) is not subject to any agreement (including (i) any agreement governing Indebtedness incurred in order to finance or refinance the acquisition of such asset, and (ii) if applicable, the organizational documents of any Subsidiary Guarantor) which prohibits or limits the ability of the Borrower or any Subsidiary Guarantor to create, incur, assume or suffer to exist any Lien upon any assets or Capital Stock of the Borrower or any Subsidiary Guarantor, including, without limitation, any negative pledge or similar covenant or restriction, (c) is not subject to any agreement (including any agreement governing Indebtedness incurred in order to finance or refinance the acquisition of such asset) which entitles any Person to the benefit of any Lien (other than -19- 24 Permitted Liens set forth in SECTIONS 6.16(i) THROUGH 6.16(iv)) on any assets or Capital Stock of the Borrower or any Subsidiary Guarantor, or would entitle any Person to the benefit of any Lien (other than Permitted Liens set forth in SECTIONS 6.16(i) THROUGH 6.16(iv)) on such assets or Capital Stock upon the occurrence of any contingency (including, without limitation, pursuant to an "equal and ratable" clause), and (d) has been improved with an income-producing building or buildings which are substantially completed and occupied. For the purposes of this Agreement, any Project of a Subsidiary Guarantor shall not be deemed to be unencumbered unless both (i) such Project and (ii) all Capital Stock of such Subsidiary Guarantor held by the Borrower is unencumbered. "Unfunded Liabilities" means the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Unrestricted Cash and Cash Equivalents" means, in the aggregate, all cash and Cash Equivalents which are not pledged or otherwise restricted for the benefit of any creditor and which are owned by members of the Consolidated Group or Investment Affiliates, to be valued for purposes of this Agreement at (i) 100% of its then-current book value, as determined under GAAP, for any such items owned by a member of the Consolidated Group or (ii) the applicable Consolidated Group Pro Rata Share of its then-current book value, as determined under GAAP, for any such items owned by an Investment Affiliate. "Value of Unencumbered Assets" means, as of any date, the amount determined by dividing the Net Operating Income for each Project which is an Unencumbered Asset as of such date for a calculation period which shall be either the immediately preceding two (2) full fiscal quarters or, if so requested by Borrower or the Administrative Agent, the one (1) immediately preceding full fiscal quarter and the then current partial quarter (in all cases as annualized) by 0.095, provided that not more than 15% of the Value of Unencumbered Assets shall be attributable to Unencumbered Assets which are ground leased. If a Project has been acquired during such calculation period then Borrower shall be entitled to include pro forma Net Operating Income (based on leases in existence at the date of such acquisition) from such Project for the entire calculation period in the foregoing calculation, except for purposes of the financial covenant comparing the Net Operating Income from Unencumbered Assets to Consolidated Interest Expense under SECTION 6.21(iv). If a Project is no longer owned as of the date of determination, then no value shall be included based on capitalizing Net Operating Income from such Project, except for purposes of such financial covenant comparing the Net Operating Income from Unencumbered Assets to Consolidated Interest Expense under SECTION 6.21(iv). -20- 25 "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II THE CREDIT ---------- 2.1. COMMITMENTS; REDUCTION OR INCREASE IN AGGREGATE COMMITMENT. Subject to the terms and conditions of this Agreement, Lenders severally agree to make Advances through the Administrative Agent to Borrower from time to time prior to the Facility Termination Date, PROVIDED THAT the making of any such Advance will not cause the outstanding principal balance of all Loans (including all Advances, Swingline Loans and Competitive Bid Loans) to exceed the then-current Aggregate Commitment. The Advances may be ratable Floating Rate Advances, ratable Fixed Rate Advances, non-pro rata Swingline Loans or non-pro rata Competitive Bid Loans. Except for Swingline Loans and Competitive Bid Loans, each Lender shall fund its Percentage of each such Advance and no Lender will be required to fund any amounts which, when aggregated with such Lender's Percentage of (i) all other Advances (other than Competitive Bid Loans) then outstanding and (ii) all Swingline Advances, would exceed such Lender's then-current Commitment. This facility ("FACILITY") is a revolving credit facility and, subject to the provisions of this Agreement, Borrower may request Advances hereunder, repay such Advances and reborrow Advances at any time prior to the Facility Termination Date. The Borrower shall have the right, upon not less than five (5) Business Days' irrevocable notice to the Administrative Agent, to terminate the Aggregate Commitment in its entirety or, from time to time, to reduce the amount of the Aggregate Commitment PROVIDED that no such termination or reduction shall be permitted if, after giving effect thereto and to any payments of Advances made on the effective date thereof, the aggregate principal amount of the Advances then outstanding would exceed the remaining Aggregate Commitment, subject to the provisions of the following grammatical paragraph. Any such reduction shall be in an amount equal to $5,000,000 or a whole multiple thereof and shall reduce permanently the Aggregate Commitment. Any such reduction shall reduce the Commitments of all of the Lenders ratably in proportion to their respective Commitments and, unless -21- 26 otherwise agreed by the Swingline Lender, shall reduce the maximum amount of Swingline Advances permitted hereunder by the same proportion. The Borrower shall also have the right from time to time to increase the Aggregate Commitment up to a maximum of $300,000,000 by either adding new banks as Lenders (subject to the Administrative Agent's prior written approval of the identity of such new banks) or obtaining the agreement, which shall be at such Lender's or Lenders' sole discretion, of one or more of the then-current Lenders to increase its or their Commitments. Such increases shall be evidenced by the execution and delivery of an Amendment Regarding Increase in the form of EXHIBIT K attached hereto by the Borrower, the Administrative Agent and the new bank or existing Lender providing such additional Commitment, a copy of which shall be forwarded to each Lender by the Administrative Agent promptly after execution thereof. On the effective date of each such increase in the Aggregate Commitment, the Borrower and the Administrative Agent shall cause the new or existing Lenders providing such increase to hold its or their Percentage of all ratable Advances outstanding at the close of business on such day, by either funding more than its or their Percentage of new ratable Advances made on such date or purchasing shares of outstanding ratable Loans held by the other Lenders or a combination thereof. The Lenders agree to cooperate in any required sale and purchase of outstanding ratable Advances to achieve such result. In no event will such new or existing Lenders providing the increase be required to fund or purchase a portion of any Competitive Bid Loan or Swingline Loan to comply with this Section on such date. In no event shall the Aggregate Commitment exceed $300,000,000 without the approval of all of the Lenders. 2.2. FINAL PRINCIPAL PAYMENT. Any outstanding Advances and all other unpaid Obligations shall be paid in full by the Borrower on the Facility Termination Date. 2.3. RATABLE AND NONRATABLE LOANS. Each Advance hereunder shall consist of Loans made from the several Lenders ratably in proportion to their respective Percentages, except for Swingline Loans which shall be made by the Swingline Lender in accordance with Section 2.21 and Competitive Bid Loans which may be made on a non-pro rata basis by one or more of the Lenders in accordance with SECTIONS 2.23 and 2.24. 2.4. APPLICABLE MARGINS. Each of the ABR Applicable Margin, the CD Applicable Margin and the LIBOR Applicable Margin to be used in calculating the interest rate applicable to different Types of Advances and the Facility Fee Rate to be used in calculating the Facility Fee shall vary from time to time in accordance with the higher of Borrower's then applicable Moody's debt rating and S&P's debt rating unless one of such two ratings is more than one rating category lower than the other, in which case the average of the two different Applicable Margins and the average of the two different Facility Fee Rates shall be used. The Applicable Margins shall be adjusted effective on the next Business Day following any change in Borrower's Moody's debt rating and/or S&P's debt rating, as the case may be. -22- 27 The applicable debt ratings, the Applicable Margins and Facility Fee Rate are set forth in the following table:
================================================================================================================================ LIBOR/CD ABR APPLICABLE APPLICABLE FACILITY S&P RATING MOODY'S RATING MARGIN MARGIN FEE RATE - -------------------------------------------------------------------------------------------------------------------------------- A- or higher A3 or higher 0.65% 0.00% 0.15% - -------------------------------------------------------------------------------------------------------------------------------- BBB+ Baa1 0.75% 0.00% 0.15% - -------------------------------------------------------------------------------------------------------------------------------- BBB Baa2 0.85% 0.00% 0.15% - -------------------------------------------------------------------------------------------------------------------------------- BBB- Baa3 1.00% 0.00% 0.15% - -------------------------------------------------------------------------------------------------------------------------------- Less than BBB- Less than Baa3 1.15% 0.15% 0.25% ================================================================================================================================
In the event that either S&P or Moody's shall discontinue their ratings of the REIT industry or the Borrower, the Borrower shall seek a debt rating from Fitch or Duff & Phelps or, if the Borrower so desires, another substitute rating agency reasonably satisfactory to the Administrative Agent and the Borrower. For the period from the date of such discontinuance until the first to occur of (i) the date the Borrower receives a debt rating from such new rating agency or (ii) a date 180 days after such discontinuance, the single rating from S&P or Moody's, as the case may be, shall be used to determine the Applicable Margin and the Facility Fee Rate. If the debt rating of the Borrower from such new rating agency is not received within such 180 day period, or if both S&P and Moody's shall discontinue their ratings of the REIT industry or the Borrower, the Applicable Margin to be used for the calculation of interest on Advances hereunder shall be the highest Applicable Margin for each Type and the Facility Fee to be used for the calculation of the Facility Fee shall be the highest rate shown above. If a rating agency downgrade or discontinuance results in an increase in the ABR Applicable Margin, the CD Applicable Margin or the LIBOR Applicable Margin or in the Facility Fee Rate and if such increase is reversed and the affected Applicable Margin or Facility Fee Rate is restored within ninety (90) days thereafter, at Borrower's request, Borrower shall receive a credit against interest next due the Lenders equal to (i) interest accrued at the differential between such Applicable Margins plus (ii) the differential in the Facility Fees accruing from time to time during such period of downgrade or discontinuance. 2.5. FACILITY FEE. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee (the "FACILITY FEE") calculated for each day after the Agreement Execution Date through the Facility Termination Date at a per annum rate equal to the Facility Fee Rate in effect for such day (converted to a per diem rate) times the Aggregate Commitment as of such day. The Facility Fee shall be payable quarterly in arrears on the last day of each calendar quarter hereafter beginning March 31, 1998 and on the Facility Termination Date. Notwithstanding the foregoing, all accrued Facility Fees shall be payable on the effective date of any reduction in the Aggregate Commitment or any termination of the obligations of the Lenders to make Loans hereunder. -23- 28 2.6. OTHER FEES. The Borrower agrees to pay all fees payable to the Administrative Agent and the Arranger pursuant to the Borrower's letter agreement with the Administrative Agent and the Arranger dated January 5, 1998. The Borrower shall also pay the fee due to the Administrative Agent in connection with certain Competitive Bid Loans as provided in Section 2.23 hereof. 2.7. MINIMUM AMOUNT OF EACH ADVANCE. Each Advance shall be in the minimum amount of $1,000,000 (and in multiples of $100,000 if in excess thereof); provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Commitment. 2.8. OPTIONAL PRINCIPAL PAYMENTS. The Borrower may from time to time pay, without penalty or premium, all or any part of outstanding Floating Rate Advances without prior notice to the Administrative Agent. A Fixed Rate Advance may be paid on the last day of the applicable Interest Period or, if and only if the Borrower pays any amounts due to the Lenders under SECTIONS 3.4 and 3.5 as a result of such prepayment, on a day prior to such last day. Notwithstanding the foregoing, in no event shall Borrower have the right to prepay a Competitive Bid Loan without the consent of the applicable Competitive Bid Lender. 2.9. METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR NEW ADVANCES. The Borrower shall select the Type of Advance and, in the case of each Fixed Rate Advance, the Interest Period applicable to each Advance from time to time. The Borrower shall give the Administrative Agent irrevocable notice (a "Borrowing Notice") (i) not later than 9:00 a.m. Chicago time on the Borrowing Date of each Floating Rate Advance, (ii) not later than 10:00 a.m. Chicago time, at least one (1) Business Day before the Borrowing Date for each Fixed CD Rate Advance, (iii) not later than 10:00 a.m. Chicago time, at least three (3) Business Days before the Borrowing Date for each LIBOR Advance, and (iv) not later than 2:00 p.m. Chicago time on the Borrowing Date for each Swingline Loan, specifying: (i) the Borrowing Date, which shall be a Business Day, of such Advance, (ii) the aggregate amount of such Advance, (iii) the Type of Advance selected (which must be a Floating Rate Advance in the case of the Swingline Loans), and (iv) in the case of each Fixed Rate Advance, the Interest Period applicable thereto. The Administrative Agent shall provide a copy to the Lenders by facsimile of each Borrowing Notice and each Conversion/Continuation Notice not later than the close of business on the Business Day it is received. Each Lender shall make available its Loan or Loans, in funds immediately available in Chicago to the Administrative Agent at its address specified pursuant to ARTICLE XIII on each Borrowing Date not later than (i) 10:00 a.m. -24- 29 (Chicago time), in the case of Floating Rate Advances which have been requested by a Borrowing Notice given to the Administrative Agent not later than 3:00 p.m. (Chicago time) on the Business Day immediately preceding such Borrowing Date, or (ii) noon (Chicago time) in the case of all other Advances (other than Swingline Loans), and 4:00 p.m. (Chicago time) for all Swingline Loans. The Administrative Agent will make the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address. No Interest Period may end after the Facility Termination Date and, unless the Lenders otherwise agree in writing, in no event may there be more than five (5) different Interest Periods for LIBOR Advances outstanding at any one time. 2.10. CONVERSION AND CONTINUATION OF OUTSTANDING ADVANCES. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Fixed Rate Advances. Each Fixed Rate Advance of any Type shall continue as a Fixed Rate Advance of such Type until the end of the then applicable Interest Period therefor, at which time such Fixed Rate Advance shall be automatically converted into a Floating Rate Advance unless the Borrower shall have given the Administrative Agent a Conversion/Continuation Notice requesting that, at the end of such Interest Period, such Fixed Rate Advance either continue as a Fixed Rate Advance of such Type for the same or another Interest Period or be converted to an Advance of another Type. Subject to the terms of SECTION 2.7, the Borrower may elect from time to time to convert all or any part of an Advance of any Type into any other Type or Types of Advances; provided that any conversion of any Fixed Rate Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. The Borrower shall give the Administrative Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an Advance to a Fixed Rate Advance or continuation of a Fixed Rate Advance not later than 10:00 a.m. (Chicago time) at least one Business Day, in the case of a conversion into a Fixed CD Rate Advance or a continuation of a Fixed CD Rate Advance, or three Business Days, in the case of a conversion into or continuation of a LIBOR Advance, prior to the date of the requested conversion or continuation, specifying: (i) the requested date which shall be a Business Day, of such conversion or continuation; (ii) the aggregate amount and Type of the Advance which is to be converted or continued; and (iii) the amount and Type(s) of Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Fixed Rate Advance, the duration of the Interest Period applicable thereto. -25- 30 2.11. CHANGES IN INTEREST RATE, ETC. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is converted from a Fixed Rate Advance into a Floating Rate Advance pursuant to SECTION 2.10 to but excluding the date it becomes due or is converted into a Fixed Rate Advance pursuant to SECTION 2.10 hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Fixed Rate Advance shall bear interest from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Fixed Rate Advance. 2.12. RATES APPLICABLE AFTER DEFAULT. Notwithstanding anything to the contrary contained in SECTION 2.9 or 2.10, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of SECTION 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Fixed Rate Advance. During the continuance of a Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of SECTION 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Fixed Rate Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum and (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate otherwise applicable to the Floating Rate Advance plus 2% per annum. 2.13. Method of Payment. ------------------ (i) All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Administrative Agent at the Administrative Agent's address specified pursuant to ARTICLE XIII, or at any other Lending Installation of the Administrative Agent specified in writing by the Administrative Agent to the Borrower, by noon (local time) on the date when due and shall be applied ratably by the Administrative Agent among the Lenders. (ii) As provided elsewhere herein, all Lenders' interests in the Advances and the Loan Documents shall be ratable undivided interests and none of such Lenders' interests shall have priority over the others. Each payment delivered to the Administrative Agent for the account of any Lender or amount to be applied or paid by the Administrative Agent to any Lender shall be paid promptly (on the same day as received by the Administrative Agent if received prior to noon (local time) on such day -26- 31 and otherwise on the next Business Day) by the Administrative Agent to such Lender in the same type of funds that the Administrative Agent received at its address specified pursuant to ARTICLE XIII or at any Lending Installation specified in a notice received by the Administrative Agent from such Lender. Payments received by the Administrative Agent but not timely funded to the Lenders shall bear interest payable by the Administrative Agent at the Federal Funds Effective Rate from the date due until the date paid. The Administrative Agent is hereby authorized to charge the account of the Borrower maintained with First Chicago for each payment of principal, interest and fees as it becomes due hereunder. 2.14. NOTES; TELEPHONIC NOTICES. Each Lender is hereby authorized to record the principal amount of each of its Loans and each repayment on the schedule attached to its Note, provided, however, that the failure to so record shall not affect the Borrower's obligations under such Note. The Borrower hereby authorizes the Lenders and the Administrative Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any Authorized Officer. The Borrower agrees to deliver promptly to the Administrative Agent a written confirmation, if such confirmation is requested by the Administrative Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Lenders, the records of the Administrative Agent and the Lenders shall govern absent manifest error. 2.15. INTEREST PAYMENT DATES; INTEREST AND FEE BASIS. Interest accrued on each Advance (other than Competitive Bid Loans) shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, at maturity, whether by acceleration or otherwise, and upon any termination of the Aggregate Commitment in its entirety under Section 2.1 hereof. Interest accrued on each Competitive Bid Loan shall be payable on the last day of the Interest Period applicable to such Competitive Bid Loan or any earlier date on which such Competitive Bid Loan is repaid, at maturity, whether by acceleration or otherwise, and upon any termination of the Aggregate Commitment in its entirety under SECTION 2.1 hereof. Interest and Facility Fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.16. NOTIFICATION OF ADVANCES, INTEREST RATES AND PREPAYMENTS. The Administrative Agent will notify each Lender of the contents of each Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder not later -27- 32 than the close of business on the Business Day such notice is received by the Administrative Agent. The Administrative Agent will notify each Lender of the interest rate applicable to each Fixed Rate Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. 2.17. LENDING INSTALLATIONS. Subject to SECTION 3.5, each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or telex notice to the Administrative Agent and the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made. 2.18. NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE AGENT. Unless the Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the time at which it is scheduled to make payment to the Administrative Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of the Lenders, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Administrative Agent, the recipient of such payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (i) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (ii) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan. If such Lender so repays such amount and interest thereon to the Administrative Agent within one Business Day after such demand, all interest accruing on the Loan not funded by such Lender during such period shall be payable to such Lender when received from the Borrower. 2.19. WITHHOLDING TAX EXEMPTION. At least five Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Lender, each Lender that is not incorporated under the laws of the United States of America, or a state thereof, agrees that it will deliver to each of the Borrower and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes. Each Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to each of the Borrower and the Administrative Agent two additional copies of such form (or a successor form) on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the -28- 33 occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Administrative Agent, in each case certifying that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. 2.20. REPLACEMENT OF LENDERS UNDER CERTAIN CIRCUMSTANCES. The Borrower shall be permitted to replace any Lender which (a) is not capable of receiving payments without any deduction or withholding of United States federal income tax pursuant to SECTION 2.19, or (b) cannot maintain its Fixed Rate Loans at a suitable Lending Installation pursuant to SECTION 3.3, with a replacement bank or other financial institution; PROVIDED that (i) such replacement does not conflict with any applicable legal or regulatory requirements affecting the Lenders, (ii) no Default or (after notice thereof to Borrower) no Unmatured Default shall have occurred and be continuing at the time of such replacement, (iii) the Borrower shall repay (or the replacement bank or institution shall purchase, at par) all Loans and other amounts owing to such replaced Lender prior to the date of replacement, (iv) the Borrower shall be liable to such replaced Lender under SECTIONS 3.4 and 3.5 if any Fixed Rate Loan owing to such replaced Lender shall be prepaid (or purchased) other than on the last day of the Interest Period relating thereto, (v) the replacement bank or institution, if not already a Lender, and the terms and conditions of such replacement, shall be reasonably satisfactory to the Administrative Agent, (vi) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of SECTION 12.3 (provided that the Borrower shall be obligated to pay the processing fee referred to therein), (vii) until such time as such replacement shall be consummated, the Borrower shall pay all additional amounts (if any) required pursuant to SECTION 2.19 and (viii) any such replacement shall not be deemed to be a waiver of any rights which the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender. 2.21. SWINGLINE LOANS. In addition to the other options available to Borrower hereunder, up to $10,000,000 of the Swingline Lender's Commitment, shall be available for Swingline Loans subject to the following terms and conditions. Swingline Loans shall be made available for same day borrowings provided that notice is given in accordance with SECTION 2.9 hereof. Unless otherwise approved in writing by the Required Lenders, no Swingline Loan may be made by the Swingline Lender if the Swingline Lender has either given or received written notice that a Default has occurred prior to making such Swingline Loan unless such Default has theretofore been cured or waived in accordance with the terms hereof. All Swingline Loans shall bear interest at the Floating Rate and shall be deemed to be Floating Rate Advances. In no event shall the Swingline Lender be required to fund a Swingline Loan if it would increase the total aggregate outstanding Loans (including -29- 34 Swingline Loans but not including Competitive Bid Loans) by Swingline Lender hereunder to an amount in excess of its Commitment. Upon request of the Swingline Lender made to all the Lenders, each Lender irrevocably agrees to purchase its Percentage of any Swingline Loan made by the Swingline Lender regardless of whether the conditions for disbursement are satisfied at the time of such purchase, including the existence of an Event of Default hereunder provided no Lender shall be required to have total outstanding Loans (other than Competitive Bid Loans) in an amount greater than its Commitment. Such purchase shall take place on the date of the request by Swingline Lender so long as such request is made by noon (Chicago time), otherwise on the Business Day following such request. All requests for purchase shall be in writing. From and after the date it is so purchased, each such Swingline Loan shall, to the extent purchased, (i) be treated as a Loan made by the purchasing Lenders and not by the selling Lender for all purposes under this Agreement and the payment of the purchase price by a Lender shall be deemed to be the making of a Loan by such Lender and shall constitute outstanding principal under such Lender's Note, and (ii) shall no longer be considered a Swingline Loan except that all interest accruing on or attributable to such Swingline Loan for the period prior to the date of such purchase shall be paid when due by the Borrower to the Administrative Agent for the benefit of the Swingline Lender and all such amounts accruing on or attributable to such Loans for the period from and after the date of such purchase shall be paid when due by the Borrower to the Administrative Agent for the benefit of the purchasing Lenders. If prior to purchasing its Percentage of a Swingline Loan one of the events described in SECTION 7.7 OR 7.8 shall have occurred and such event prevents the consummation of the purchase contemplated by preceding provisions, each Lender will purchase an undivided participating interest in the outstanding Swingline Loan in an amount equal to its Percentage of such Swingline Loan. From and after the date of each Lender's purchase of its participating interest in a Swingline Loan, if the Swingline Lender receives any payment on account thereof, the Swingline Lender will distribute to such Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded); provided, however, that in the event that such payment was received by the Swingline Lender and is required to be returned to the Borrower, each Lender will return to the Swingline Lender any portion thereof previously distributed by the Swingline Lender to it. If any Lender fails to so purchase its Percentage of any Swingline Loan, such Lender shall be deemed to be a Defaulting Lender hereunder. No Swingline Loan shall be outstanding for more than five (5) days at a time and Swingline Loans shall not be outstanding for more than a total of ten (10) days during any month. 2.22. Competitive Bid Loans. ---------------------- (a) COMPETITIVE BID OPTION. In addition to ratable Advances pursuant to SECTION 2.3, but subject to the terms and conditions of this Agreement (including, without limitation the limitation set forth in SECTION 2.1 as to the maximum amount of all outstanding Advances, including Swingline Loans and Competitive Bid Loans), the Borrower may, as set forth in SECTIONS 2.23 or 2.24, request the Lenders, prior to the Facility Termination Date, to make offers to make Competitive Bid Loans to the -30- 35 Borrower. Each Lender may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in SECTION 2.23 or SECTION 2.24, as the case may be. Competitive Bid Loans shall be evidenced by the Competitive Bid Notes. Borrower shall not have the right to request a Competitive Bid Loan at any time that a Default exists. If Borrower elects to have Administrative Agent administer the Competitive Bid Loan process, the procedures set forth in SECTION 2.23 shall apply. If Borrower elects to administer the Competitive Bid Loan process itself, the procedures set forth in SECTION 2.24 shall apply. (b) GENERAL TERMS. Any Competitive Bid Loan shall not reduce the Commitment of the Lender making such Competitive Bid Loan, and each such Lender shall continue to be obligated to fund its full Percentage of all pro rata Advances under the Facility. In no event can the aggregate amount of all Competitive Bid Loans at any time exceed fifty percent (50%) of the then Aggregate Commitment. Notwithstanding anything to the contrary in SECTION 2.10, Competitive Bid Loans may not be continued or converted and, if not repaid at the end of the Interest Period applicable thereto, shall (subject to the conditions set forth in this Agreement) be replaced by new Competitive Bid Loans made in accordance with SECTION 2.23 or SECTION 2.24 or by ratable Advances in accordance with SECTION 2.9. (c) FUNDING OF COMPETITIVE BID LOANS. Each Lender that is to make a Competitive Bid Loan shall, before 2:00 p.m. (Chicago time) on the date of such Competitive Bid Loan specified in the notice received from the Borrower make available the amount of such Competitive Bid Loan to the Administrative Agent. If such Lender also has an outstanding Competitive Bid Loan that is payable on such date, the Borrower agrees that such Lender may fund only the net increase, if any, in such new Competitive Bid Loan over the principal balance of such outstanding Competitive Bid Loan and such outstanding Competitive Bid Loan shall be deemed advanced by the Lender to the Borrower on the terms of the new Competitive Bid Loan. Upon fulfillment of the applicable conditions to disbursement and after receipt of such funds, the Administrative Agent will make such funds available to the Borrower at the Administrative Agent's aforesaid address. 2.23. Agent Administered Competitive Bid Loans. ----------------------------------------- (a) COMPETITIVE BID QUOTE REQUEST. When the Borrower wishes to request offers to make Competitive Bid Loans under this SECTION 2.23, it shall transmit to the Administrative Agent by telecopy a Competitive Bid Quote Request substantially in the form of EXHIBIT I-1 hereto so as to be received no later than (i) 10:00 a.m. (Chicago time) at least five Business Days prior to the Borrowing Date proposed therein, in the case of a request for a Competitive LIBOR Margin or (ii) 9:00 a.m. (Chicago time) at least one Business Day prior to the Borrowing Date proposed therein, in the case of a request for an Absolute Rate specifying: -31- 36 (i) the proposed Borrowing Date for the proposed Competitive Bid Loan, (ii) the requested aggregate principal amount of such Competitive Bid Loan which shall be at least $5,000,000 and in an integral multiple of $1,000,000, (iii) whether the Competitive Bid Quotes requested are to set forth a Competitive LIBOR Margin or an Absolute Rate, or both, and (iv) the LIBOR Interest Period, if a Competitive LIBOR Margin is requested, or the Absolute Interest Period, if an Absolute Rate is requested. The Borrower may request offers to make Competitive Bid Loans for more than one (but not more than five) Interest Periods in a single Competitive Bid Quote Request. No Competitive Bid Quote Request shall be given within five Business Days (or such other number of days as the Borrower and the Administrative Agent may agree) of any other Competitive Bid Quote Request or Invitation for Competitive Bid Quotes. A Competitive Bid Quote Request that does not conform substantially to the form of EXHIBIT I-1 hereto shall be rejected, and the Administrative Agent shall promptly notify the Borrower of such rejection by telecopy. (b) INVITATION FOR COMPETITIVE BID QUOTES. Promptly and in any event before the close of business on the same Business Day of receipt of a Competitive Bid Quote Request that is not rejected pursuant to SECTION 2.23(a), the Administrative Agent shall send to each of the Lenders by telecopy an Invitation for Competitive Bid Quotes substantially in the form of EXHIBIT I-2 hereto, which shall constitute an invitation by the Borrower to each Lender to submit Competitive Bid Quotes offering to make the Competitive Bid Loans to which such Competitive Bid Quote Request relates in accordance with this SECTION 2.23. (C) Submission and Contents of Competitive Bid Quotes. -------------------------------------------------- (i) Each Lender may, in its sole discretion, submit a Competitive Bid Quote containing an offer or offers to make Competitive Bid Loans in response to any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must comply with the requirements of this SECTION 2.23(c) and must be submitted to the Administrative Agent by telex or telecopy at its offices not later than (a) 2:00 p.m. (Chicago time) at least four Business Days prior to the proposed Borrowing Date, in the case of a request for a Competitive LIBOR Margin or (b) 9:00 a.m. (Chicago time) on the proposed Borrowing Date, in the case of a request for an Absolute Rate (or, in either case upon reasonable prior notice to the Lenders, such other time and -32- 37 date as the Borrower and the Administrative Agent may agree); PROVIDED that Competitive Bid Quotes submitted by First Chicago may only be submitted if the Administrative Agent or First Chicago notifies the Borrower of the terms of the offer or offers contained therein no later than 30 minutes prior to the latest time at which the relevant Competitive Bid Quotes must be submitted by the other Lenders. Subject to the Borrower's compliance with all other conditions to disbursement herein, any Competitive Bid Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the Borrower. (ii) Each Competitive Bid Quote shall be in substantially the form of EXHIBIT I-3 hereto and shall in any case specify: (a) the proposed Borrowing Date, which shall be the same as that set forth in the applicable Invitation for Competitive Bid Quotes, (b) the principal amount of the Competitive Bid Loan for which each such offer is being made, which principal amount (1) may be greater than, less than or equal to the Commitment of the quoting Lender, (2) must be at least $5,000,000 and an integral multiple of $1,000,000, and (3) may not exceed the principal amount of Competitive Bid Loans for which offers are requested, (c) as applicable, the Competitive LIBOR Margin and Absolute Rate offered for each such Competitive Bid Loan, (d) the minimum amount, if any, of the Competitive Bid Loan which may be accepted by the Borrower, and (e) the identity of the quoting Lender, provided that such Competitive Bid Loan may be funded by such Lender's Designated Lender as provided in Section 2.23(h), regardless of whether that is specified in the Competitive Bid Quote. (iii) The Administrative Agent shall reject any Competitive Bid Quote that: (a) is not substantially in the form of EXHIBIT I-3 hereto or does not specify all of the information required by SECTION 2.23(c)(ii), -33- 38 (b) contains qualifying, conditional or similar language, other than any such language contained in EXHIBIT I-3 hereto, (c) proposes terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Quotes, or (d) arrives after the time set forth in SECTION 2.23(c)(i). If any Competitive Bid Quote shall be rejected pursuant to this SECTION 2.23(c)(iii), then the Administrative Agent shall notify the relevant Lender of such rejection as soon as practical. (d) NOTICE TO BORROWER. The Administrative Agent shall promptly notify the Borrower of the terms (i) of any Competitive Bid Quote submitted by a Lender that is in accordance with SECTION 2.23(c) and (ii) of any Competitive Bid Quote that amends, modifies or is otherwise inconsistent with a previous Competitive Bid Quote submitted by such Lender with respect to the same Competitive Bid Quote Request. Any such subsequent Competitive Bid Quote shall be disregarded by the Administrative Agent unless such subsequent Competitive Bid Quote specifically states that it is submitted solely to correct a manifest error in such former Competitive Bid Quote. The Administrative Agent's notice to the Borrower shall specify the aggregate principal amount of Competitive Bid Loans for which offers have been received for each Interest Period specified in the related Competitive Bid Quote Request and the respective principal amounts and Competitive LIBOR Margins or Absolute Rate, as the case may be, so offered. (e) ACCEPTANCE AND NOTICE BY BORROWER. Not later than (i) 6:00 p.m. (Chicago time) at least four Business Days prior to the proposed Borrowing Date in the case of a request for a Competitive LIBOR Margin or (ii) 10:00 a.m. (Chicago time) on the proposed Borrowing Date, in the case of a request for an Absolute Rate (or, in either case upon reasonable prior notice to the Lenders, such other time and date as the Borrower and the Administrative Agent may agree), the Borrower shall notify the Administrative Agent of its acceptance or rejection of the offers so submitted to it pursuant to SECTION 2.23(d); PROVIDED, HOWEVER, that the failure by the Borrower to give such notice to the Administrative Agent shall be deemed to be a rejection of all such offers. In the case of acceptance, such notice (a "COMPETITIVE BID BORROWING NOTICE") shall specify the aggregate principal amount of offers for each Interest Period that are accepted and the applicable interest rate. The Administrative Agent shall immediately advise the Lenders making the accepted offers of the contents of the Competitive Bid Borrowing Notice. The Borrower may accept -34- 39 any Competitive Bid Quote in whole or in part (subject to the terms of SECTION 2.23(c)(iii)); PROVIDED that: (i) the aggregate principal amount of all Competitive Bid Loans to be disbursed on a given Borrowing Date may not exceed the applicable amount set forth in the related Competitive Bid Quote Request, (ii) acceptance of offers may only be made on the basis of ascending Competitive LIBOR Margins or Absolute Rates, as the case may be, and (iii) the Borrower may not accept any offer that is described in SECTION 2.23(c)(iii) or that otherwise fails to comply with the requirements of this Agreement. (f) ALLOCATION BY ADMINISTRATIVE AGENT. If offers are made by two or more Lenders with the same Competitive LIBOR Margins or Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which offers are accepted for the related Interest Period, the principal amount of Competitive Bid Loans in respect of which such offers are accepted shall be allocated by the Administrative Agent among such Lenders as nearly as possible (in such multiples, not greater than $1,000,000, as the Administrative Agent may deem appropriate) in proportion to the aggregate principal amount of such offers PROVIDED, however, that no Lender shall be allocated any Competitive Bid Loan which is less than the minimum amount which such Lender has indicated that it is willing to accept. Allocations by the Administrative Agent of the amounts of Competitive Bid Loans shall be conclusive in the absence of manifest error. The Administrative Agent shall promptly, but in any event on the same Business Day, notify each Lender of its receipt of a Competitive Bid Borrowing Notice and the principal amounts of the Competitive Bid Loans allocated to each participating Lender. (g) ADMINISTRATION FEE. The Borrower hereby agrees to pay to the Administrative Agent an administration fee of $2,500 per each Competitive Bid Quote Request transmitted by the Borrower to the Administrative Agent pursuant to SECTION 2.23(a). Such administration fees, if not paid at the time of the applicable Competitive Bid Quote Request shall be payable monthly in arrears on the first Business Day of each month and on the Facility Termination Date (or such earlier date on which the Aggregate Commitment shall terminate or be cancelled). (h) DESIGNATED LENDERS. A Lender may designate its Designated Lender to fund a Competitive Bid Loan on its behalf as described in SECTION 2.23(c)(ii)(e). Any Designated Lender which funds a Competitive Bid Loan shall on and after the time of such funding become the obligee under such Competitive Bid Loan and be entitled to receive payments thereof when due. No Lender shall be relieved of its obligation to -35- 40 fund a Competitive Bid Loan, and no Designated Lender shall assume such obligation, prior to the time such Competitive Bid Loan is funded. 2.24. Competitive Bid Loans Administered by Borrower. ----------------------------------------------- (a) COMPETITIVE BID QUOTE REQUEST. When the Borrower wishes to request offers to make Competitive Bid Loans under this SECTION 2.24, it shall transmit to the Lenders and Administrative Agent by telecopy an Invitation for Competitive Bid Quote substantially in the form of EXHIBIT J-1 hereto so as to be received no later than (i) 10:00 a.m. (Chicago time) at least five Business Days prior to the Borrowing Date proposed therein, in the case of a request for a Competitive LIBOR Margin or (ii) 9:00 a.m. (Chicago time) at least one Business Day prior to the Borrowing Date proposed therein, in the case of a request for an Absolute Rate specifying: (i) the proposed Borrowing Date for the proposed Competitive Bid Loan, (ii) the requested aggregate principal amount of such Competitive Bid Loan which shall be at least $5,000,000 and in an integral multiple of $1,000,000, (iii) whether the Competitive Bid Quotes requested are to set forth a Competitive LIBOR Margin or an Absolute Rate, or both, and (iv) the LIBOR Interest Period, if a Competitive LIBOR Margin is requested, or the Absolute Interest Period, if an Absolute Rate is requested. The Borrower may request offers to make Competitive Bid Loans for more than one (but not more than five) Interest Periods in a single Competitive Bid Quote. No Invitation for Competitive Bid Quote shall be given within five Business Days (or such other number of days as the Borrower and the Administrative Agent may agree) of any other Invitation for Competitive Bid Quote. (B) Submission and Contents of Competitive Bid Quotes. -------------------------------------------------- (i) Each Lender may, in its sole discretion, submit a Competitive Bid Quote containing an offer or offers to make Competitive Bid Loans in response to any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must comply with the requirements of this SECTION 2.24(b) and must be submitted to the Borrower by telex or telecopy at its offices not later than (a) 2:00 p.m. (Chicago time) at least four Business Days prior to the proposed Borrowing Date, in the case of a request for a Competitive LIBOR Margin or (b) 9:00 a.m. (Chicago time) on the proposed -36- 41 Borrowing Date, in the case of a request for an Absolute Rate (or, in either case upon reasonable prior notice to the Lenders, such other time and date as the Borrower and the Administrative Agent may agree). Subject to the Borrower's compliance with all other conditions to disbursement herein, any Competitive Bid Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the Borrower. (ii) Each Competitive Bid Quote shall be in substantially the form of EXHIBIT J-2 hereto and shall in any case specify: (a) the proposed Borrowing Date, which shall be the same as that set forth in the applicable Invitation for Competitive Bid Quotes, (b) the principal amount of the Competitive Bid Loan for which each such offer is being made, which principal amount (1) may be greater than, less than or equal to the Commitment of the quoting Lender, (2) must be at least $5,000,000 and an integral multiple of $1,000,000, and (3) may not exceed the principal amount of Competitive Bid Loans for which offers are requested, (c) as applicable, the Competitive LIBOR Margin and Absolute Rate offered for each such Competitive Bid Loan, (d) the minimum amount, if any, of the Competitive Bid Loan which may be accepted by the Borrower, and (e) the identity of the quoting Lender, provided that such Competitive Bid Loan may be funded by such Lender's Designated Lender as provided in SECTION 2.24(e), regardless of whether that is specified in the Competitive Bid Quote. (iii) The Borrower shall reject any Competitive Bid Quote that: (a) is not substantially in the form of Exhibit J-2 hereto or does not specify all of the information required by SECTION 2.24(b)(ii), (b) contains qualifying, conditional or similar language, other than any such language contained in EXHIBIT J-2 hereto, -37- 42 (c) proposes terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Quotes, or (d) arrives after the time set forth in SECTION 2.24(b)(i). If any Competitive Bid Quote shall be rejected pursuant to this SECTION 2.24(b)(iii), then the Borrower shall notify the relevant Lender of such rejection as soon as practical. (c) ACCEPTANCE AND NOTICE BY BORROWER. Not later than (i) 6:00 p.m. (Chicago time) at least four Business Days prior to the proposed Borrowing Date in the case of a request for a Competitive LIBOR Margin or (ii) 10:00 a.m. (Chicago time) on the proposed Borrowing Date, in the case of a request for an Absolute Rate (or, in either case upon reasonable prior notice to the Lenders, such other time and date as the Borrower and the Administrative Agent may agree), the Borrower shall notify the Lenders and Administrative Agent of its acceptance or rejection of the offers submitted to it pursuant to SECTION 2.24(b); PROVIDED, HOWEVER, that the failure by the Borrower to give such notice to the Lenders and Administrative Agent shall be deemed to be a rejection of all such offers. In the case of acceptance, such notice to each Lender and the Administrative Agent shall specify the aggregate principal amount of offers for each Interest Period that are accepted and the applicable interest rate. The Borrower may accept any Competitive Bid Quote in whole or in part (subject to the terms of SECTION 2.24(b)(iii)); PROVIDED that: (i) the aggregate principal amount of all Competitive Bid Loans to be disbursed on a given Borrowing Date may not exceed the applicable amount set forth in the related Invitation for Competitive Bid Quote, (ii) acceptance of offers may only be made on the basis of ascending Competitive LIBOR Margins or Absolute Rates, as the case may be, and (iii) the Borrower may not accept any offer that is described in SECTION 2.24(b)(iii) or that otherwise fails to comply with the requirements of this Agreement. (d) ALLOCATION BY BORROWER. If offers are made by two or more Lenders with the same Competitive LIBOR Margins or Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which offers are accepted for the related Interest Period, the principal amount of Competitive Bid Loans in respect of which such offers are accepted shall be allocated by the Borrower among such Lenders as nearly as possible (in such multiples, not greater than -38- 43 $1,000,000, as the Administrative Agent may deem appropriate) in proportion to the aggregate principal amount of such offers PROVIDED, however, that no Lender shall be allocated any Competitive Bid Loan which is less than the minimum amount which such Lender has indicated that it is willing to accept. Allocations by the Borrower of the amounts of Competitive Bid Loans shall be conclusive in the absence of manifest error. (e) DESIGNATED LENDERS. A Lender may designate its Designated Lender to fund a Competitive Bid Loan on its behalf as described in SECTION 2.24(b)(ii)(e). Any Designated Lender which funds a Competitive Bid Loan shall on and after the time of such funding become the obligee under such Competitive Bid Loan and be entitled to receive payments thereof when due. No Lender shall be relieved of its obligation to fund a Competitive Bid Loan, and no Designated Lender shall assume such obligation, prior to the time such Competitive Bid Loan is funded. 2.25. APPLICATION OF MONEYS RECEIVED. All moneys collected or received by the Administrative Agent on account of the Facility directly or indirectly, shall be applied in the following order of priority: (i) to the payment of all reasonable costs incurred in the collection of such moneys of which the Administrative Agent shall have given notice to the Borrower; (ii) to the reimbursement of any yield protection due to any of the Lenders in accordance with SECTION 3.1; (iii) to the payment of the Facility Fee to the Lenders, if then due, and to the payment of all fees to the Administrative Agent; (iv) to payment of the full amount of interest and principal on the Swingline Loans; (v) first to interest until paid in full and then to principal for all Lenders (other than Defaulting Lenders) (i) as allocated by the Borrower (unless a Default exists) between Competitive Bid Loans and ratable Advances (the amount allocated to ratable Advances to be distributed in accordance with the Percentages of the Lenders) or (ii) if an Event of Default exists, in accordance with the respective Funded Percentages of the Lenders; (vi) any other sums due to the Administrative Agent or any Lender under any of the Loan Documents; and -39- 44 (vii) to the payment of any sums due to each Defaulting Lender as their respective Percentages appear (provided that Administrative Agent shall have the right to set-off against such sums any amounts due from such Defaulting Lender). 2.26. USURY. This Agreement and each Note and Competitive Bid Note are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject any Lender (including the Swingline Lender) to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If by the terms of this Agreement or the Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the interest rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. ARTICLE III CHANGE IN CIRCUMSTANCES ----------------------- 3.1. YIELD PROTECTION. If (i) any change in any law, governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) in effect on the Agreement Execution Date, or a change in any interpretation thereof, or the compliance by any Lender therewith, or (ii) the enactment following the Agreement Execution Date of any new law, governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or the compliance by any Lender therewith, results in: (i) any Lender or any applicable Lending Installation being subjected to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding federal taxation of the overall net income of any Lender or applicable Lending Installation), or the basis of taxation of payments to any Lender in respect of its Loans or other amounts due it hereunder being changed, or (ii) any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or -40- 45 credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Fixed Rate Advances) being imposed, increased or deemed applicable, or (iii) any other condition being imposed the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with loans, or any Lender or any applicable Lending Installation being required to make any payment calculated by reference to the amount of loans held or interest received by it, by an amount deemed material by such Lender, then, within 30 days of demand by such Lender, the Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender in good faith determines is attributable to making, funding and maintaining its Loans and its Commitment. 3.2. CHANGES IN CAPITAL ADEQUACY REGULATIONS. If a Lender in good faith determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change (as hereinafter defined), then, within 30 days of demand by such Lender, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender in good faith determines is attributable to this Agreement, its Loans or its obligation to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy). "CHANGE" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "RISK-BASED CAPITAL GUIDELINES" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3. AVAILABILITY OF TYPES OF ADVANCES. If any Lender in good faith determines that maintenance of any of its Fixed Rate Loans at a suitable Lending Installation would violate any applicable law, rule, regulation or directive, whether or not having the force of law, the Administrative Agent shall suspend the availability of the affected Type of Advance -41- 46 and require any Fixed Rate Advances of the affected Type to be repaid; or if the Required Lenders in good faith determine that (i) deposits of a type or maturity appropriate to match fund Fixed Rate Advances are not available, the Administrative Agent shall suspend the availability of the affected Type of Advance with respect to any Fixed Rate Advances made after the date of any such determination, or (ii) an interest rate applicable to a Type of Advance does not accurately reflect the cost of making a Fixed Rate Advance of such Type, then, if for any reason whatsoever the provisions of SECTION 3.1 are inapplicable, the Administrative Agent shall suspend the availability of the affected Type of Advance with respect to any Fixed Rate Advances made after the date of any such determination. 3.4. FUNDING INDEMNIFICATION. If any payment of a ratable Fixed Rate Advance or a Competitive Bid Loan occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a ratable Fixed Rate Advance or a Competitive Bid Loan is not made on the date specified by Borrower for any reason other than default by one or more of the Lenders, Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including without limitation any loss or cost in liquidating or employing deposits acquired to fund or maintain the ratable Fixed Rate Advance or Competitive Bid Loan, as the case may be, and shall pay all such losses or costs within 15 days after written demand therefor. Without limitation of any losses arising from changes in the Fixed Rate adverse to the Lenders, in no event will the administrative cost payable by the Borrower as a result of such early payment or failure to make an advance exceed $250 per occurrence per Lender. Nothing in this Section 3.4 shall authorize the prepayment of a Competitive Bid Loan prior to the end of the applicable Interest Period. 3.5. LENDER STATEMENTS; SURVIVAL OF INDEMNITY. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Fixed Rate Loans to reduce any liability of the Borrower to such Lender under SECTIONS 3.1 and 3.2 or to avoid the unavailability of a Type of Advance under SECTION 3.3, so long as such designation is not disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender as to the amount due, if any, under SECTIONS 3.1, 3.2 or 3.4. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Fixed Rate Loan shall be calculated as though each Lender funded its Fixed Rate Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Fixed Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement shall be payable on demand after receipt by the Borrower of the written statement. The obligations of the Borrower under SECTIONS 3.1, 3.2 and 3.4 shall survive payment of the Obligations and termination of this Agreement. -42- 47 ARTICLE IV CONDITIONS PRECEDENT -------------------- 4.1. INITIAL ADVANCE. The Lenders shall not be required to make the initial Advance hereunder unless (a) the Borrower shall, prior to or concurrently with such initial Advance, have paid all fees due and payable to the Lenders and the Administrative Agent hereunder, and (b) the Borrower shall have furnished to the Administrative Agent, with sufficient copies for the Lenders, the following: (i) The duly executed originals of the Loan Documents, including the Notes, payable to the order of each of the Lenders, this Agreement and the Subsidiary Guaranty; (ii) (A) Certificates of good standing for the Borrower and each Subsidiary Guarantor, from the State of Ohio for the Borrower and the states of organization of each Subsidiary Guarantor, certified by the appropriate governmental officer and dated not more than thirty (30) days prior to the Agreement Execution Date, and (B) foreign qualification certificates for the Borrower and each Subsidiary Guarantor, certified by the appropriate governmental officer and dated not more than two years prior to the Agreement Execution Date (with telephonic updates as practical not more than 10 days prior to the Agreement Execution Date), for each other jurisdiction where the failure of the Borrower or such Subsidiary Guarantor to so qualify or be licensed (if required) would have a Material Adverse Effect; (iii) Copies of the formation documents (including code of regulations, if appropriate) of the Borrower and each Subsidiary Guarantor, certified by an officer of the Borrower or such Subsidiary Guarantor, as appropriate, together with all amendments thereto; (iv) Incumbency certificates, executed by officers of the Borrower and each Subsidiary Guarantor, which shall identify by name and title and bear the signature of the Persons authorized to sign the Loan Documents and to make borrowings hereunder on behalf of the Borrower, upon which certificate the Administrative Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower or any such Subsidiary Guarantor; (v) Copies, certified by a Secretary or an Assistant Secretary of the Borrower and each Subsidiary Guarantor, of the Board of Directors' resolutions (and resolutions of other bodies, if any are reasonably -43- 48 deemed necessary by counsel for any Lender) authorizing the Advances provided for herein, with respect to the Borrower, and the execution, delivery and performance of the Loan Documents to be executed and delivered by the Borrower and each Subsidiary Guarantor hereunder; (vi) A written opinion of the Borrower's and Subsidiary Guarantors' counsel, addressed to the Lenders in substantially the form of EXHIBIT B hereto or such other form as the Administrative Agent may reasonably approve; (vii) A certificate, signed by an officer of the Borrower, stating that on the initial Borrowing Date no Default or Unmatured Default has occurred and is continuing and that all representations and warranties of the Borrower are true and correct as of the initial Borrowing Date provided that such certificate is in fact true and correct; (viii) The most recent financial statements of the Borrower; (ix) UCC financing statement, judgment, and tax lien searches with respect to the Borrower from the State of Ohio; (x) Written money transfer instructions, in substantially the form of EXHIBIT E hereto, addressed to the Administrative Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Administrative Agent may have reasonably requested; (xi) A pro forma compliance certificate in the form of EXHIBIT C as of December 31, 1997, executed by the Borrower's chief financial officer or chief accounting officer prepared on the assumption that the other Indebtedness of Borrower being repaid by the initial Advance hereunder was replaced by Advances hereunder for the period covered by such certificate; (xii) Evidence that the Commitments of any lenders under the Prior Agreement which are not Lenders under this Agreement (the "EXITING LENDERS") have been properly terminated and all amounts due to the Exiting Lenders have been paid, or will be, paid out of the proceeds of the initial Advance hereunder; and (xiii) Such other documents as any Lender or its counsel may have reasonably requested, the form and substance of which documents shall be reasonably acceptable to the parties and their respective counsel. -44- 49 4.2. EACH ADVANCE. The Lenders shall not be required to make any Advance unless on the applicable Borrowing Date: (i) There exists no Default or Unmatured Default; and (ii) The representations and warranties contained in ARTICLE V are true and correct as of such Borrowing Date with respect to Borrower and to any Subsidiary in existence on such Borrowing Date, except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall be true and correct on and as of such earlier date. Each Borrowing Notice with respect to each such Advance shall constitute a representation and warranty by the Borrower that the conditions contained in SECTIONS 4.2(i) and (ii) have been satisfied. ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ The Borrower represents and warrants to the Lenders that: 5.1. EXISTENCE. Borrower is a corporation duly organized and validly existing under the laws of the State of Ohio, with its principal place of business in Moreland Hills, Ohio and is duly qualified as a foreign corporation, properly licensed (if required), in good standing and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except where the failure to be so qualified, licensed and in good standing and to have the requisite authority would not have a Material Adverse Effect. Each of Borrower's Subsidiaries is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 5.2. AUTHORIZATION AND VALIDITY. The Borrower has the corporate power and authority and legal right to execute and deliver the Loan Documents and to perform its obligations thereunder. The execution and delivery by the Borrower of the Loan Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. -45- 50 5.3. NO CONFLICT; GOVERNMENT CONSENT. Neither the execution and delivery by the Borrower of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Subsidiaries or the Borrower's or any Subsidiary's articles of incorporation or by-laws, or the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, except where such violation, conflict or default would not have a Material Adverse Effect, or result in the creation or imposition of any Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument or agreement. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, any of the Loan Documents other than the filing of a copy of this Agreement, or the filing of information concerning this Agreement, with the Securities and Exchange Commission. 5.4. FINANCIAL STATEMENTS; MATERIAL ADVERSE CHANGE. All consolidated financial statements of the Borrower and its Subsidiaries heretofore or hereafter delivered to the Lenders were prepared in accordance with GAAP in effect on the preparation date of such statements and fairly present in all material respects the consolidated financial condition and operations of the Borrower and its Subsidiaries at such date and the consolidated results of their operations for the period then ended, subject, in the case of interim financial statements, to normal and customary year-end adjustments. From the preparation date of the most recent financial statements delivered to the Lenders through the Agreement Execution Date, there was no change in the business, properties, or condition (financial or otherwise) of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.5. TAXES. The Borrower and its Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Subsidiaries except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. No tax liens have been filed and remain outstanding for amounts in excess of $250,000. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.6. LITIGATION AND GUARANTEE OBLIGATIONS. Except as set forth on SCHEDULE 3 hereto or as set forth in written notice to the Administrative Agent from time to time, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. -46- 51 Notwithstanding the disclosure of the litigation identified on SCHEDULE 3 the Borrower, based on consultation with its counsel, represents that the Borrower is unlikely to suffer any material adverse result in such litigation. The Borrower has no material contingent obligations not provided for or disclosed in the financial statements referred to in SECTION 6.1 or as set forth in written notices to the Administrative Agent given from time to time after the Agreement Execution Date on or about the date such material contingent obligations are incurred.. 5.7. SUBSIDIARIES. SCHEDULE 1 hereto contains, as of the Agreement Execution Date, an accurate list of all of the presently existing Subsidiaries of the Borrower, setting forth their respective jurisdictions of incorporation and the percentage of their respective capital stock owned by the Borrower or other Subsidiaries. All of the issued and outstanding shares of capital stock of such Subsidiaries have been duly authorized and issued and are fully paid and non-assessable. 5.8. ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $1,000,000. Neither the Borrower nor any other member of the Controlled Group has incurred, or is reasonably expected to incur, any withdrawal liability to Multiemployer Plans in excess of $250,000 in the aggregate. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither the Borrower nor any other members of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan. 5.9. ACCURACY OF INFORMATION. All factual information heretofore or contemporaneously furnished by or on behalf of the Borrower or any of its Subsidiaries to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of the Borrower or any of its Subsidiaries to the Administrative Agent or any Lender will be, to the knowledge of Borrower, true and accurate (taken as a whole) on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading in light of the circumstances and purposes for which such information was provided at such time. 5.10. REGULATION U. The Borrower has not used the proceeds of any Advance to buy or carry any margin stock (as defined in Regulation U) in violation of the terms of this Agreement. 5.11. MATERIAL AGREEMENTS. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (i) any agreement to which it is a party, -47- 52 which default could have a Material Adverse Effect, or (ii) any agreement or instrument evidencing or governing Indebtedness, which default would constitute a Default hereunder. 5.12. COMPLIANCE WITH LAWS. The Borrower and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, except for any non-compliance which would not have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could have a Material Adverse Effect. 5.13. OWNERSHIP OF PROPERTIES. Except as set forth on SCHEDULE 2 hereto, on the date of this Agreement, the Borrower and its Subsidiaries will have good and marketable title, free of all Liens other than those permitted by SECTION 6.16, to all of the Property and assets reflected in the financial statements as owned by it. 5.14. INVESTMENT COMPANY ACT. Neither the Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.15. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.16. SOLVENCY. (i) Immediately after the Agreement Execution Date and immediately following the making of each Loan and after giving effect to the application of the proceeds of such Loans, (a) the fair value of the assets of the Borrower and its Subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, subordinated, contingent or otherwise, of the Borrower and its Subsidiaries on a consolidated basis; (b) the present fair saleable value of the Property of the Borrower and its Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Borrower and its Subsidiaries on a consolidated basis on their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) the Borrower and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) the Borrower and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted after the date hereof. -48- 53 (ii) The Borrower does not intend to, or to permit any of its Subsidiaries to, and does not believe that it or any of its Subsidiaries will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing of and amounts of cash to be received by it or any such Subsidiary and the timing of the amounts of cash to be payable on or in respect of its Indebtedness or the Indebtedness of any such Subsidiary. 5.17. INSURANCE. The Borrower and its Subsidiaries carry insurance on their Projects with financially sound and reputable insurance companies, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar Projects in localities where the Borrower and its Subsidiaries operate, including, without limitation: (i) Property and casualty insurance (including coverage for flood and other water damage for any Project located within a 100-year flood plain) in the amount of the replacement cost of the improvements at the Project; (ii) Builder's risk insurance for any Project under construction in the amount of the construction cost of such Project; (iii) Loss of rental income insurance in the amount not less than one year's gross revenues from the Projects; and (iv) Comprehensive general liability insurance in the amount of $20,000,000 per occurrence. 5.18. REIT STATUS. The Borrower is in good standing on the New York Stock Exchange, is qualified as a real estate investment trust and currently is in compliance in all material respects with all provisions of the Code applicable to the qualification of the Borrower as a real estate investment trust. 5.19. ENVIRONMENTAL MATTERS. Each of the following representations and warranties is true and correct on and as of the Agreement Execution Date except to the extent that the facts and circumstances giving rise to any such failure to be so true and correct, in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) To the best knowledge of the Borrower, the Projects of the Borrower and its Subsidiaries do not contain any Materials of Environmental Concern in amounts or concentrations which constitute a violation of, or could reasonably give rise to liability of the Borrower or any Subsidiary under, Environmental Laws. (b) To the best knowledge of the Borrower, (i) the Projects of the Borrower and its Subsidiaries and all operations at the Projects are in compliance with all applicable Environmental Laws, and (ii) with respect to all Projects owned by the Borrower and/or its Subsidiaries (x) for at least two (2) years, have in the last two -49- 54 years, or (y) for less than two (2) years, have for such period of ownership, been in compliance in all material respects with all applicable Environmental Laws. (c) Neither the Borrower nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Projects, nor does the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened. (d) To the best knowledge of the Borrower, Materials of Environmental Concern have not been transported or disposed of from the Projects of the Borrower and its Subsidiaries in violation of, or in a manner or to a location which could reasonably give rise to liability of the Borrower or any Subsidiary under, Environmental Laws, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Projects of the Borrower and its Subsidiaries in violation of, or in a manner that could give rise to liability of the Borrower or any Subsidiary under, any applicable Environmental Laws. (e) No judicial proceedings or governmental or administrative action is pending, or, to the knowledge of the Borrower, threatened, under any Environmental Law to which the Borrower or any of its Subsidiaries is or, to the Borrower's knowledge, will be named as a party with respect to the Projects of the Borrower and its Subsidiaries, nor are there any consent decrees or other decrees, consent orders, administrative order or other orders, or other administrative of judicial requirements outstanding under any Environmental Law with respect to the Projects of the Borrower and its Subsidiaries. (f) To the best knowledge of the Borrower, there has been no release or threat of release of Materials of Environmental Concern at or from the Projects of the Borrower and its Subsidiaries, or arising from or related to the operations of the Borrower and its Subsidiaries in connection with the Projects in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws. ARTICLE VI COVENANTS --------- During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: -50- 55 6.1. FINANCIAL REPORTING. The Borrower will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with GAAP, and furnish to the Lenders: (i) As soon as available, but in any event not later than 45 days after the close of each fiscal quarter, for the Borrower and its Subsidiaries, an unaudited consolidated balance sheet as of the close of each such period and the related unaudited consolidated statements of income and retained earnings and of cash flows of the Borrower and its Subsidiaries for such period and the portion of the fiscal year through the end of such period, setting forth in each case in comparative form the figures for the previous year, all certified by the Borrower's chief financial officer or chief accounting officer; (ii) As soon as available, but in any event not later than 45 days after the close of each fiscal quarter, for the Borrower and its Subsidiaries, the following reports in form and substance reasonably satisfactory to the Lenders, all certified by the entity's chief financial officer or chief accounting officer: a statement of Funds From Operations, a statement of cash flows for each individual Project, a statement detailing Consolidated Outstanding Indebtedness, Consolidated Secured Indebtedness, and Consolidated Senior Unsecured Indebtedness, Consolidated Cash Flow (with a breakdown between Unencumbered Assets and other assets), a listing of capital expenditures, a report listing and describing all newly acquired Projects, including their net operating income, cash flow, cost and secured or unsecured Indebtedness assumed in connection with such acquisition, if any, summary information and such other information on all Projects as may be reasonably requested; (iii) As soon as available, but in any event not later than 90 days after the close of each fiscal year, for the Borrower and its Subsidiaries, audited financial statements, including a consolidated balance sheet as at the end of such year and the related consolidated statements of income and retained earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, prepared by Price Waterhouse (or other independent certified public accountants of nationally recognized standing reasonably acceptable to Administrative Agent); (iv) As soon as available, but in any event not later than 90 days after the close of each fiscal year, for the Borrower and its Subsidiaries, a statement detailing the contributions to Consolidated Cash Flow from -51- 56 each individual Project for the prior fiscal year in form and substance reasonably satisfactory to the Lenders, certified by the entity's chief financial officer or chief accounting officer; (v) Together with the quarterly and annual financial statements required hereunder, a compliance certificate in substantially the form of EXHIBIT C hereto signed by the Borrower's chief financial officer or chief accounting officer showing the calculations and computations necessary to determine compliance with this Agreement and stating that, to such officer's knowledge, no Default or Unmatured Default exists, or if, to such officer's knowledge, any Default or Unmatured Default exists, stating the nature and status thereof; (vi) As soon as possible and in any event within 10 days after a responsible officer of the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the chief financial officer of the Borrower, describing said Reportable Event and the action which the Borrower proposes to take with respect thereto; (vii) As soon as possible and in any event within 10 days after receipt by a responsible officer of the Borrower, a copy of (a) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower or any of its Subsidiaries, which, in either case, could have a Material Adverse Effect; (viii) Promptly upon the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports and proxy statements so furnished; (ix) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other reports and any other public information which the Borrower or any of its Subsidiaries files with the Securities Exchange Commission; and (x) Such other information (including, without limitation, financial statements for the Borrower and non-financial information) as the Administrative Agent or any Lender may from time to time reasonably request. -52- 57 6.2. USE OF PROCEEDS. The Borrower will, and will cause each of its Subsidiaries to, use the proceeds of the Advances for the general corporate purposes of the Borrower, including working capital needs, the repayment of Indebtedness, financing for property acquisitions of new Projects, construction of new improvements or expansions of existing improvements on Projects, and to repay outstanding Advances. The Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances (i) to purchase or carry any "margin stock" (as defined in Regulation U) if such usage could constitute a violation of Regulation U by any Lender, (ii) to fund any purchase of, or offer for, any Capital Stock of any Person, unless such Person has consented to such offer prior to any public announcements relating thereto, or (iii) to make any Acquisition other than a Permitted Acquisition. 6.3. NOTICE OF DEFAULT. The Borrower will give, and will cause each of its Subsidiaries to give, prompt notice in writing to the Lenders of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, which could reasonably be expected to have a Material Adverse Effect. 6.4. CONDUCT OF BUSINESS. The Borrower will do, and will cause each of its Subsidiaries to do, all things necessary to remain duly incorporated or duly qualified, validly existing and in good standing as a real estate investment trust, corporation, general partnership or limited partnership, as the case may be, in its jurisdiction of incorporation/formation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted and to carry on and conduct their businesses in substantially the same manner as they are presently conducted where the failure to do so could reasonably be expected to have a Material Adverse Effect and, specifically, neither the Borrower nor its Subsidiaries may undertake any business other than the acquisition, development, ownership, management, operation and leasing of retail, office or industrial properties, and ancillary businesses specifically related to such types of properties. 6.5. TAXES. The Borrower will pay, and will cause each of its Subsidiaries to pay, when due all taxes, assessments and governmental charges and levies upon them of their income, profits or Projects, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside. 6.6. INSURANCE. The Borrower will, and will cause each of its Subsidiaries to, maintain with financially sound and reputable insurance companies insurance on all their Property in such amounts and covering such risks as is consistent with sound business practice, and the Borrower will furnish to any Lender upon reasonable request full information as to the insurance carried. 6.7. COMPLIANCE WITH LAWS. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which they may be subject, the violation of which could reasonably be expected to have a Material Adverse Effect. -53- 58 6.8. MAINTENANCE OF PROPERTIES. The Borrower will, and will cause each of its Subsidiaries to, do all things necessary to maintain, preserve, protect and keep their respective Projects and Properties, reasonably necessary for the continuous operation of the Projects, in good repair, working order and condition, ordinary wear and tear excepted. 6.9. INSPECTION. The Borrower will, and will cause each of its Subsidiaries to, permit the Lenders upon reasonable notice, by their respective representatives and agents, to inspect any of the Projects, corporate books and financial records of the Borrower and each of its Subsidiaries, to examine and make copies of the books of accounts and other financial records of the Borrower and each of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and each of its Subsidiaries with officers thereof, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lenders may designate. 6.10. MAINTENANCE OF STATUS. The Borrower shall at all times (i) remain a corporation listed and in good standing on the New York Stock Exchange, and (ii) maintain its status as a real estate investment trust in compliance with all applicable provisions of the Code relating to such status. 6.11. DIVIDENDS. Provided there is no then-existing Default or (after notice thereof to Borrower) Unmatured Default hereunder, the Borrower and its Subsidiaries shall be permitted to declare and pay dividends on their Capital Stock from time to time in amounts determined by Borrower, PROVIDED, HOWEVER, that in no event shall Borrower declare or pay dividends on its Capital Stock if (a) dividends paid on account of any fiscal quarter, in the aggregate, would exceed 95% of Funds From Operations for such fiscal quarter, or (b) dividends paid on account of any fiscal year, in the aggregate, would exceed 90% of Funds From Operations for such fiscal year. 6.12. MERGER; SALE OF ASSETS. The Borrower will not, nor will it permit any of its Subsidiaries to, enter into any merger (other than mergers in which such entity is the survivor), consolidation, reorganization or liquidation or transfer or otherwise dispose of all or a Substantial Portion of their Properties, except for such transactions that occur between Wholly-Owned Subsidiaries or between Borrower and a Wholly-Owned Subsidiary or as otherwise approved in advance by the Required Lenders. 6.13. DELIVERY OF SUBSIDIARY GUARANTIES. Borrower shall cause each of its existing Subsidiaries to execute and deliver to the Agent the Subsidiary Guaranty. Borrower shall promptly notify Administrative Agent of any planned formation or acquisition of any additional Subsidiaries. Within 10 days after Borrower forms or acquires any Subsidiary other than a Subsidiary which is a single-purpose entity formed solely for the purpose of owning Projects in connection with securitized Indebtedness and which has restrictions on the creation of additional Indebtedness and other safeguards typically imposed on such single-purpose entities in securitized financings, Borrower shall cause such Subsidiary to execute and deliver to the Administrative Agent a Subsidiary Guaranty. -54- 59 6.14. SALE AND LEASEBACK. The Borrower will not, nor will it permit any of its Subsidiaries to, sell or transfer a Substantial Portion of its Property in order to concurrently or subsequently lease such Property as lessee. 6.15. ACQUISITIONS AND INVESTMENTS. The Borrower will not, nor will it permit any Subsidiary to, make or suffer to exist any Investments (including without limitation, loans and advances to, and other Investments in, Subsidiaries), or commitments therefor, or become or remain a partner in any partnership or joint venture, or to make any Acquisition of any Person, except: (i) Cash Equivalents; (ii) Investments in existing Subsidiaries, Investments in Subsidiaries formed for the purpose of acquiring Properties, Investments in joint ventures and partnerships engaged solely in the business of purchasing, developing, owning, operating, leasing and managing retail properties and office and industrial properties, and Investments in existence on the date hereof and described in SCHEDULE 1 hereto; (iii) transactions permitted pursuant to SECTION 6.12; and (iv) Acquisitions of Persons whose primary operations consist of the ownership, development, operation and management of retail, office or industrial properties; provided that, after giving effect to such Acquisitions and Investments, Borrower continues to comply with all its covenants herein. Acquisitions permitted pursuant to this SECTION 6.15 shall be deemed to be "PERMITTED ACQUISITIONS". 6.16. LIENS. The Borrower will not, nor will it permit any of its Subsidiaries to, create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves shall have been set aside on its books; (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate -55- 60 proceedings and for which adequate reserves shall have been set aside on its books; (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation; (iv) Easements, restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or its Subsidiaries; (v) Liens on Projects existing on the date hereof which secure Indebtedness as described in SCHEDULE 2 hereto; and (vi) Liens other than Liens described in subsections (i) through (iv) above arising in connection with any Indebtedness permitted hereunder to the extent such Liens will not result in a Default in any of Borrower's covenants herein. Liens permitted pursuant to this SECTION 6.16 shall be deemed to be "PERMITTED LIENS". 6.17. AFFILIATES. The Borrower will not, nor will it permit any of its Subsidiaries to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make any payment or transfer to, any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms-length transaction. 6.18. FINANCIAL UNDERTAKINGS. The Borrower will not enter into or remain liable upon, nor will it permit any Subsidiary to enter into or remain liable upon, any Financial Undertaking, except to the extent required to protect the Borrower and its Subsidiaries against increases in interest payable by them under variable interest Indebtedness. 6.19. VARIABLE INTEREST INDEBTEDNESS. The Borrower and its Subsidiaries shall not at any time permit the outstanding principal balance of Indebtedness which bears interest at an interest rate that is not fixed through the maturity date of such Indebtedness to exceed $325,000,000, unless all of such Indebtedness in excess of $325,000,000 is subject to a swap, rate cap or other interest rate management program approved by the Administrative Agent that effectively converts the interest rate on such excess to a fixed rate. -56- 61 6.20. CONSOLIDATED NET WORTH. The Borrower shall maintain a Consolidated Net Worth of not less than the sum of (i) $650,000,000 plus (ii) ninety percent (90%) of the aggregate proceeds received by the Borrower (net of customary related fees and expenses) in connection with any offering of stock in the Borrower after December 31, 1997 and on or prior to the date such determination of Consolidated Net Worth is made. 6.21. INDEBTEDNESS AND CASH FLOW COVENANTS. The Borrower on a consolidated basis with its Subsidiaries shall not permit: (i) Consolidated Outstanding Indebtedness to exceed fifty-five percent (55%) of Consolidated Market Value, as of any date; (ii) Consolidated Secured Indebtedness to exceed thirty-five percent (35%) of Consolidated Market Value, as of the last day of any fiscal quarter; (iii) the Value of Unencumbered Assets to be less than 1.75 times the Consolidated Senior Unsecured Indebtedness, as of any date; (iv) the aggregate Net Operating Income for the two (2) most recent fiscal quarters of the Consolidated Group for which results have been reported under SECTION 6.1 from all Unencumbered Assets qualifying for inclusion in the Value of Unencumbered Assets as of the date of determination to be less than 1.75 times the portion of Consolidated Interest Expense for such two (2) fiscal quarters attributable to Consolidated Senior Unsecured Debt, as of the last day of any fiscal quarter; and (v) Consolidated Cash Flow to be less than 2.0 times the Consolidated Debt Service, based on the most recent two (2) fiscal quarters, for which the Consolidated Group has reported results under SECTION 6.1, annualized, as of the last day of any fiscal quarter. 6.22. ENVIRONMENTAL MATTERS. Borrower and its Subsidiaries shall: (a) Comply with, and use all reasonable efforts to ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply with and maintain, and use all reasonable efforts to ensure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws, except to the extent that failure to do so could not be reasonably expected to have a Material Adverse Effect; provided that in no event shall the Borrower or its Subsidiaries be required to modify the terms of leases, or renewals thereof, with existing tenants (i) at Projects owned by the Borrower or its Subsidiaries as of the -57- 62 date hereof, or (ii) at Projects hereafter acquired by the Borrower or its Subsidiaries as of the date of such acquisition, to add provisions to such effect. (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws, except to the extent that (i) the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not be reasonably expected to have a Material Adverse Effect, or (ii) the Borrower has determined in good faith that contesting the same is not in the best interests of the Borrower and its Subsidiaries and the failure to contest the same could not be reasonably expected to have a Material Adverse Effect. (c) Defend, indemnify and hold harmless Administrative Agent and each Lender, and their respective officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under any Environmental Laws applicable to the operations of the Borrower, its Subsidiaries or the Projects, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. This indemnity shall continue in full force and effect regardless of the termination of this Agreement. (d) Prior to the acquisition of a new Project after the Agreement Execution Date, perform or cause to be performed an environmental investigation which investigation shall at a minimum comply with the specifications and procedures attached hereto as EXHIBIT G. In connection with any such investigation, Borrower shall cause to be prepared a report of such investigation, to be made available to any Lenders upon reasonable request, for informational purposes and to assure compliance with the specifications and procedures. ARTICLE VII DEFAULTS -------- The occurrence of any one or more of the following events shall constitute a Default: 7.1. Nonpayment of any principal payment on any Note when due. -58- 63 7.2 Nonpayment of interest upon any Note or of any Facility Fee or other payment Obligations under any of the Loan Documents within five (5) Business Days after the same becomes due. 7.3. The breach of any of the terms or provisions of SECTIONS 6.2 and 6.10 through 6.21. 7.4. Any representation or warranty made or deemed made by or on behalf of the Borrower or any of its Subsidiaries to the Lenders or the Administrative Agent under or in connection with this Agreement, any Loan, or any material certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made. 7.5. The breach by the Borrower (other than a breach which constitutes a Default under SECTION 7.1, 7.2, 7.3 or 7.4) of any of the terms or provisions of this Agreement which is not remedied within fifteen (15) days after written notice from the Administrative Agent or any Lender. 7.6. Failure of the Borrower or any of its Subsidiaries to pay when due (A) any Recourse Indebtedness in excess of $10,000,000 in the aggregate or (B) any Indebtedness, whether or not Recourse Indebtedness, in excess of $20,000,000 in the aggregate; or the default by the Borrower or any of its Subsidiaries in the performance of any term, provision or condition contained in any agreement, or any other event shall occur or condition exist, which causes or permits (A) any Recourse Indebtedness of the Borrower or any of its Subsidiaries in excess of $10,000,000 in the aggregate or (B) any Indebtedness, whether or not Recourse Indebtedness, in excess of $20,000,000 in the aggregate to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the stated maturity thereof (provided that the failure to pay any such Indebtedness shall not constitute a Default so long as the Borrower or its Subsidiaries is diligently contesting the payment of the same by appropriate legal proceedings and the Borrower or its Subsidiaries have set aside, in a manner reasonably satisfactory to Administrative Agent, a sufficient reserve to repay such Indebtedness plus all accrued interest thereon calculated at the default rate thereunder and costs of enforcement in the event of an adverse outcome). 7.7. The Borrower, or any Subsidiary having more than $10,000,000 of Equity Value, shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it as a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the -59- 64 material allegations of any such proceeding filed against it, (v) take any corporate action to authorize or effect any of the foregoing actions set forth in this SECTION 7.7, (vi) fail to contest in good faith any appointment or proceeding described in SECTION 7.8 or (vii) admit in writing its inability to pay its debts generally as they become due. 7.8. A receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any Subsidiary having more than $10,000,000 of Equity Value, or for any Substantial Portion of the Property of the Borrower or such Subsidiary, or a proceeding described in SECTION 7.7(iv) shall be instituted against the Borrower or any such Subsidiary and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of ninety (90) consecutive days. 7.9. The Borrower or any of its Subsidiaries shall fail within sixty (60) days to pay, bond or otherwise discharge any judgments or orders for the payment of money in an amount which, when added to all other judgments or orders outstanding against Borrower or any Subsidiary would exceed $10,000,000 in the aggregate, which have not been stayed on appeal or otherwise appropriately contested in good faith. 7.10. The Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that it has incurred withdrawal liability to such Multiemployer Plan in an amount which, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower or any other member of the Controlled Group as withdrawal liability (determined as of the date of such notification), exceeds $1,000,000 or requires payments exceeding $500,000 per annum. 7.11. The Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Borrower and the other members of the Controlled Group (taken as a whole) to all Multiemployer Plans which are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan years of each such Multiemployer Plan immediately preceding the plan year in which the reorganization or termination occurs by an amount exceeding $500,000. 7.12. Failure to remediate within the time period permitted by law or governmental order, after all administrative hearings and appeals have been concluded (or within a reasonable time in light of the nature of the problem if no specific time period is so established), environmental problems at Properties owned by the Borrower or any of its Subsidiaries or Investment Affiliates if the estimated costs of remediation at all such Properties in the aggregate exceed $20,000,000. -60- 65 7.13. The occurrence of any "Default" as defined in any Loan Document or the breach of any of the terms or provisions of any Loan Document, which default or breach continues beyond any period of grace therein provided. 7.14. The occurrence of any Material Adverse Effect. ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES ---------------------------------------------- 8.1. ACCELERATION. If any Default described in SECTION 7.7 or 7.8 occurs with respect to the Borrower, the obligations of the Lenders to make Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Administrative Agent or any Lender. If any other Default occurs, the Required Lenders, at any time prior to the date that such Default has been fully cured, may terminate or suspend the obligations of the Lenders to make Loans hereunder, or declare the Obligations to be due and payable, or both, whereupon (i) the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives and (ii) the Administrative Agent, as directed by the Required Lenders (or if no such direction is given within 30 days after a request for direction, as the Administrative Agent deems in the best interests of the Lenders, in its sole discretion), shall use its good faith efforts to collect, including without limitation, by filing and diligently pursuing judicial action, all amounts owed by the Borrower and any Subsidiary Guarantor under the Loan Documents. If, after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans hereunder as a result of any Default (other than any Default as described in SECTION 7.7 or 7.8 with respect to the Borrower) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, all of the Lenders (in their sole discretion) shall so direct, the Administrative Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination. 8.2. AMENDMENTS. Subject to the provisions of this ARTICLE VIII and the right of the Borrower, solely with the agreement of the Administrative Agent and such new banks or existing Lenders as may provide new or increased Commitments, to increase the Aggregate Commitment as described in SECTION 2.1 above, the Required Lenders (or the Administrative Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower -61- 66 hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement or waiver shall, without the consent of all Lenders: (i) Extend the Facility Termination Date or forgive all or any portion of the principal amount of any Loan or accrued interest thereon or the Facility Fee, reduce the Applicable Margins or any accepted Absolute Rate (or modify any definition herein which would have the effect of reducing the Applicable Margins or any accepted Absolute Rate) or the underlying interest rate options or extend the time of payment of any such principal, interest or Facility Fees. (ii) Release any Subsidiary Guarantor from the Subsidiary Guaranty or any other future guarantor from any liability it may undertake with respect to the Obligations. (iii) Reduce the percentage specified in the definition of Required Lenders. (iv) Increase the Aggregate Commitment beyond $300,000,000. (v) Permit the Borrower to assign its rights under this Agreement. (vi) Amend SECTIONS 2.3, 2.13(ii), 2.25, 8.1, 8.2, 11.2 or the definition of Required Lenders. No amendment of any provision of this Agreement relating to the Administrative Agent shall be effective without the written consent of the Administrative Agent. 8.3. PRESERVATION OF RIGHTS. No delay or omission of the Lenders or the Administrative Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to SECTION 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Administrative Agent and the Lenders until the Obligations have been paid in full. -62- 67 ARTICLE IX GENERAL PROVISIONS ------------------ 9.1. SURVIVAL OF REPRESENTATIONS. All representations and warranties of the Borrower contained in this Agreement shall survive delivery of the Notes and the making of the Loans herein contemplated. 9.2. GOVERNMENTAL REGULATION. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3. TAXES. Any taxes (excluding taxes on the overall net income of any Lender) or other similar assessments or charges made by any governmental or revenue authority in respect of the Loan Documents shall be paid by the Borrower, together with interest and penalties, if any. 9.4. HEADINGS. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.5. ENTIRE AGREEMENT. The Loan Documents embody the entire agreement and understanding among the Borrower, the Administrative Agent and the Lenders and supersede all prior commitments, agreements and understandings among the Borrower, the Administrative Agent and the Lenders relating to the subject matter thereof. 9.6. SEVERAL OBLIGATIONS; BENEFITS OF THIS AGREEMENT. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Administrative Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 9.7. EXPENSES; INDEMNIFICATION. The Borrower shall reimburse the Administrative Agent for any costs, internal charges and out-of-pocket expenses (including, without limitation, all reasonable fees for consultants and fees and reasonable expenses for attorneys for the Administrative Agent, which attorneys may be employees of the Administrative Agent) paid or incurred by the Administrative Agent in connection with the amendment, modification, and enforcement of the Loan Documents. The Borrower also agrees to reimburse the Administrative Agent and the Lenders for any reasonable costs, internal charges and out-of-pocket expenses (including, without limitation, all fees and reasonable expenses for attorneys for the Administrative Agent and the Lenders, which attorneys may be -63- 68 employees of the Administrative Agent or the Lenders) paid or incurred by the Administrative Agent or any Lender in connection with the collection and enforcement of the Loan Documents (including, without limitation, any workout). The Borrower further agrees to indemnify the Administrative Agent and each Lender, its directors and officers against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Administrative Agent or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the Projects, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The obligations of the Borrower under this Section shall survive the termination of this Agreement. 9.8. NUMBERS OF DOCUMENTS. All statements, notices, closing documents, and requests hereunder shall be furnished to the Administrative Agent with sufficient counterparts so that the Administrative Agent may furnish one to each of the Lenders. 9.9. ACCOUNTING. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP. 9.10. SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.11. NONLIABILITY OF LENDERS. The relationship between the Borrower, on the one hand, and the Lenders and the Administrative Agent, on the other, shall be solely that of borrower and lender. Neither the Administrative Agent nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Administrative Agent nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. 9.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 9.13. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY -64- 69 UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 9.14. WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. ARTICLE X THE ADMINISTRATIVE AGENT ------------------------ 10.1. APPOINTMENT. The First National Bank of Chicago is hereby appointed Administrative Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Administrative Agent to act as the agent of such Lender. The Administrative Agent agrees to act as such upon the express conditions contained in this ARTICLE X. The Administrative Agent shall not have a fiduciary relationship in respect of the Borrower or any Lender by reason of this Agreement. 10.2. POWERS. The Administrative Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Administrative Agent. The Administrative Agent shall -65- 70 administer this Agreement in the same manner and with the same standard of care as it administers similar agreements for its own account. 10.3. GENERAL IMMUNITY. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for (i) any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except for its or their own gross negligence or willful misconduct; or (ii) any determination by the Administrative Agent that compliance with any law or any governmental or quasi-governmental rule, regulation, order, policy, guideline or directive (whether or not having the force of law) requires the Advances and Commitments hereunder to be classified as being part of a "highly leveraged transaction". The foregoing shall not limit the liability of the Administrative Agent for a breach of its express obligations and undertakings to the Lenders hereunder which continues after written notice to the Administrative Agent of such breach and its failure to cure such breach within a reasonable time after such notice. 10.4. NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (i) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (iii) the satisfaction of any condition specified in ARTICLE IV, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith. Except as otherwise specifically provided herein, the Administrative Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Borrower to the Administrative Agent at such time, but is voluntarily furnished by the Borrower to the Administrative Agent (either in its capacity as Administrative Agent or in its individual capacity). Notwithstanding anything to the contrary herein, Administrative Agent shall make available promptly after the Agreement Execution Date to any Lender copies of all Loan Documents in its possession which are requested by any such Lender. Administrative Agent shall also furnish to all Lenders promptly after such items are available in final form copies of Default notices issued to the Borrower, amendments to any Loan Documents being proposed by the Administrative Agent or the Borrower, financial statements of the Borrower required hereunder, compliance certificates from the Borrower required by this Agreement or any other notice or communication from the Borrower specifically relating to this Agreement which is actually received by the Administrative Agent. Promptly after the Administrative Agent has actual knowledge of the occurrence of a Default hereunder, the Administrative Agent shall so notify the Lenders. 10.5. ACTION ON INSTRUCTIONS OF LENDERS. Notwithstanding anything herein to the contrary, the Administrative Agent shall in all cases be fully protected in so acting, or refraining from acting, hereunder and under any other Loan Document in accordance with -66- 71 written instructions signed by the Required Lenders or all of the Lenders, as the case may be, and such instructions and any action taken or failure to act pursuant to such written instructions shall be binding on all of the Lenders and on all holders of Notes and on the Administrative Agent. 10.6. EMPLOYMENT OF AGENTS AND COUNSEL. The Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document. 10.7. RELIANCE ON DOCUMENTS; COUNSEL. The Administrative Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Administrative Agent, which counsel may be employees of the Administrative Agent. 10.8. ADMINISTRATIVE AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to reimburse and indemnify the Administrative Agent ratably in proportion to their respective Commitments (i) for any amounts not reimbursed by the Borrower for which the Administrative Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other expenses incurred by the Administrative Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents, if not paid by Borrower and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct or a breach of the Administrative Agent's express obligations and undertakings to the Lenders which is not cured after written notice and within the period described in SECTION 10.3. To the extent any amounts so paid by Lenders are thereafter recovered by the Administrative Agent from the Borrower or any Subsidiary Guarantor or otherwise, such recovered amount shall be remitted to the Lenders making such payment on a pro rata basis in accordance with their respective portions of such payment. The obligations of the Lenders and the Administrative Agent under this SECTION 10.8 shall survive payment of the Obligations and termination of this Agreement. -67- 72 10.9. RIGHTS AS A LENDER. In the event the Administrative Agent is a Lender, the Administrative Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender and may exercise the same as though it were not the Administrative Agent, and the term "Lender" or "Lenders" shall, at any time when the Administrative Agent is a Lender, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. The Administrative Agent, in its individual capacity, is not obligated to remain a Lender but if the Administrative Agent is no longer a Lender, the Administrative Agent shall resign and a successor shall be appointed as described in SECTION 10.11. The rights and duties of the Administrative Agent are separate from its rights and duties as a Lender and no transfer of all or any part of the Administrative Agent's Commitment or its interest as a Lender in the Loans hereunder shall be deemed to transfer any of its rights and duties as Administrative Agent to its successor or successors as a Lender. 10.10. LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.11. SUCCESSOR ADMINISTRATIVE AGENT. Except as otherwise provided below, First Chicago shall serve as Administrative Agent at all times during the term of this Facility. First Chicago may resign as Administrative Agent in the event (x) First Chicago and Borrower shall mutually agree in writing or (y) an Event of Default shall occur and be continuing under the Loan Documents, or (z) First Chicago shall determine, in its sole reasonable discretion, that because of its other banking relationships with Borrower and/or Borrower's Affiliates at the time of such decision First Chicago's resignation as Administrative Agent would be necessary in order to avoid creating an appearance of impropriety on the part of First Chicago. First Chicago shall also resign as Administrative Agent, within 30 days after receipt of a written request from (A) any Lender, if the Administrative Agent's Commitment, after giving effect to any assignments or reductions hereunder, is less than the lower of (i) 10% of the then-current Aggregate Commitment or (ii) the highest Commitment amount then held by any Lender. First Chicago (or any successor Administrative Agent) may be removed as Administrative Agent by written notice received by Administrative Agent from the Required Lenders at any time with cause (i.e., a breach by First Chicago (or any successor Administrative Agent) of its duties as -68- 73 Administrative Agent hereunder) or for gross negligence or willful misconduct. Upon any such resignation, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders, a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Administrative Agent's giving notice of its intention to resign or receiving such a request to resign, then the resigning Administrative Agent shall, prior to the effective date of its resignation, appoint, on behalf of the Borrower and the Lenders, a successor Administrative Agent. No successor Administrative Agent shall be deemed to be appointed hereunder until such successor Administrative Agent has accepted the appointment. Any such successor Administrative Agent shall be a commercial bank having capital and retained earnings of at least $50,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning Administrative Agent. Upon the effectiveness of the resignation of the Administrative Agent, the resigning Administrative Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation of an Administrative Agent, the provisions of this Article XI shall continue in effect for the benefit of such Administrative Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder and under the other Loan Documents. ARTICLE XI SETOFF; RATABLE PAYMENTS ------------------------ 11.1. SETOFF. In addition to, and without limitation of, any rights of the Lenders under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender at any time prior to the date that such Default has been fully cured, whether or not the Obligations, or any part hereof, shall then be due. 11.2. RATABLE PAYMENTS. If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans (other than payments received pursuant to SECTIONS 3.1, 3.2 or 3.4) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action -69- 74 necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS ------------------------------------------------- 12.1. SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with SECTION 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any time, without the consent of the Borrower or the Administrative Agent, assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. The Administrative Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with SECTION 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Administrative Agent. Any assignee or transferee of a Note agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 12.2. Participations. --------------- 12.2.1. PERMITTED PARTICIPANTS; EFFECT. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks, financial institutions, pension funds, or any other funds or entities ("PARTICIPANTS") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. -70- 75 12.2.2. VOTING RIGHTS. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment or postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan or Commitment or releases any Subsidiary from the Subsidiary Guaranty. 12.2.3. BENEFIT OF SETOFF. The Borrower agrees that each Participant which has previously advised the Borrower in writing of its purchase of a participation in a Lender's interest in its Loans shall be deemed to have the right of setoff provided in SECTION 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents. Each Lender shall retain the right of setoff provided in SECTION 11.1 with respect to the amount of participating interests sold to each Participant, provided that such Lender and Participant may not each setoff amounts against the same portion of the Obligations, so as to collect the same amount from the Borrower twice. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in SECTION 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with SECTION 11.2 as if each Participant were a Lender. 12.3. Assignments. ------------ 12.3.1. PERMITTED ASSIGNMENTS. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to any of such Lender's affiliates or to one or more banks, financial institutions or pension funds, or with the prior approval of the Borrower, which shall not be unreasonably withheld or delayed, any other entity ("PURCHASERS") all or any portion of its rights and obligations under the Loan Documents. Notwithstanding the foregoing, no approval of the Borrower shall be required for any such assignment if a Default has occurred and is then continuing. Such assignment shall be substantially in the form of EXHIBIT D hereto or in such other form as may be agreed to by the parties thereto. The consent of the Administrative Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof. Such consent shall not be unreasonably withheld. 12.3.2. EFFECT; EFFECTIVE DATE. Upon (i) delivery to the Administrative Agent of a notice of assignment, substantially in the form attached as Exhibit I to EXHIBIT D hereto (a "NOTICE OF ASSIGNMENT"), together with any consents required by SECTION 12.3.1, and (ii) payment of a $3,500 fee by the assignor or assignee to the Administrative Agent for processing such assignment, such assignment shall become -71- 76 effective on the effective date specified in such Notice of Assignment. The Notice of Assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable assignment agreement are "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Administrative Agent shall be required to release the transferor Lender, and the transferor Lender shall automatically be released on the effective date of such assignment, with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this SECTION 12.3.2, the transferor Lender, the Administrative Agent and the Borrower shall make appropriate arrangements so that replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their Commitment, as adjusted pursuant to such assignment. 12.4. DISSEMINATION OF INFORMATION. The Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Borrower and its Subsidiaries, subject to SECTION 12.6. 12.5. TAX TREATMENT. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of SECTION 2.19. 12.6. CONFIDENTIALITY. The Administrative Agent and Lenders agree to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all non-public information provided to them by the Borrower or by any other Person on the Borrower's behalf in connection with the Loan Documents and agree and undertake that neither they nor any of their Affiliates shall disclose any such information for any purpose or in any manner other than pursuant to the terms contemplated by the Loan Documents. The Administrative Agent and each Lender may disclose such information (1) at the request of any regulatory authority with jurisdiction over the Administrative Agent and/or the Lenders or in connection with an examination of such Person by any such authority, (2) pursuant to subpoena or other process of a court having jurisdiction over the Administrative Agent and/or the Lenders, (3) when required to do so in accordance with the provisions of any applicable law, (4) at the express direction of any other governmental authority, with jurisdiction over the Administrative Agent and/or the Lenders, of any State of the United -72- 77 States of America or of any other jurisdiction in which such Person conducts its business, (5) to such Person's independent auditors, attorneys and other professional advisors, (6) if such information has become public other than through disclosure by such Person or any Lender, (7) in connection with any litigation involving such Person, and (8) to any Affiliate of such Person which agrees to be bound by this SECTION 12.6. Notwithstanding the foregoing, the Borrower authorizes each of the Administrative Agent and each Lender to disclose to any prospective or actual Transferee such financial and other information in its possession (i) which has been delivered to such Person pursuant to the Loan Documents or which has been delivered to such Person by the Borrower prior to entering into the Loan Documents, or (ii) which is reasonably necessary to effectuate the purposes of this Agreement and the Loan Documents; provided that, unless otherwise agreed by the Borrower, such Transferee shall agree to keep such information confidential to the same extent required to the Administrative Agent or any Lender, as applicable, hereunder. ARTICLE XIII NOTICES ------- 13.1. GIVING NOTICE. Except as otherwise permitted by SECTION 2.14 with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by telex or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes). 13.2. CHANGE OF ADDRESS. The Borrower, the Administrative Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIV COUNTERPARTS ------------ This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Administrative Agent and the Lenders and each party has notified the Administrative Agent by telex or telephone, that it has taken such action. -73- 78 IN WITNESS WHEREOF, the Borrower, the Lenders and the Administrative Agent have executed this Agreement as of the date first above written. DEVELOPERS DIVERSIFIED REALTY CORPORATION By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- 34555 Chagrin Boulevard Moreland Hills, Ohio 44022-1004 Phone: 216/247-4700 Facsimile: 216/247-1118 Attention: Scott A. Wolstein COMMITMENTS: - ------------ $30,000,000 THE FIRST NATIONAL BANK OF CHICAGO, Percentage of Aggregate Individually and as Administrative Agent Commitment: 12% By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- One First National Plaza Chicago, Illinois 60670 Phone: 312/732-4000 Facsimile: 312/732-1117 Attention: Real Estate Finance Department -74- 79 $30,000,000 BANK OF AMERICA NATIONAL TRUST Percentage of Aggregate & SAVINGS ASSOCIATION, a national banking Commitment: 12% association By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- 231 South LaSalle Street, 12-Q Chicago, Illinois 60697 Phone: 312/828-5149 Facsimile: 312/974-4970 Attention: Richard G. Baer, Jr., Vice President $27,000,000 COMMERZBANK AKTIENGESELLSCHAFT Percentage of Aggregate Commitment: 10.8% By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- 311 South Wacker Drive, 58th Floor Chicago, Illinois 60606 Phone: 312/408-6900 Facsimile: 312/435-1485 Attention: Timothy Shortly $27,000,000 FLEET NATIONAL BANK Percentage of Aggregate Commitment: 10.8% By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- 75 State Street, MA/BO/F11C Boston, Massachusetts 02109-1810 Phone: 617/346-2881 Facsimile: 617/346-3220 Attention: Thomas Hanold, Vice President -75- 80 $27,000,000 UNION BANK OF SWITZERLAND, NEW Percentage of Aggregate YORK BRANCH Commitment: 10.8% By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- And By: Print Name: -------------------------------------- Title: ------------------------------------------- 299 Park Avenue New York, New York 10171-0026 Phone: 212/821-3851 Facsimile: 212/821-4138 Attention: Joe Bassil $27,000,000 AMSOUTH BANK Percentage of Aggregate Commitment: 10.8% By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- 1900 5th Avenue, North AmSouth South Sonat Tower, 9th Floor Birmingham, Alabama 35288 Phone: 205/581-7493 Facsimile: 205/326-4075 Attention: Lawrence Clark, Vice President -76- 81 $18,000,000 PNC BANK, NATIONAL ASSOCIATION Percentage of Aggregate Commitment: 7.2% By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- One PNC Plaza 249 5th Avenue, Mail Stop P1-POPP-19-2 Pittsburgh, Pennsylvania 15222-2707 Phone: 412/762-9118 Facsimile: 412/762-6500 Attention: Dina Muth $16,000,000 BANK ONE Percentage of Aggregate Commitment: 6.4% By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- OH2-5491, 3rd Floor Commercial Real Estate 600 Superior Avenue Cleveland, Ohio 44114 Phone: 216/781-2431 Facsimile: 216/781-4567 Attention: Sam Russo $16,000,000 COMERICA BANK Percentage of Aggregate Commitment: 6.4% By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- 500 Woodward Avenue Detroit, Michigan 48226-3256 Phone: 313/222-9306 Facsimile: 313/222-9295 Attention: David Campbell, Vice President -77- 82 $16,000,000 FIRST UNION NATIONAL BANK Percentage of Aggregate Commitment: 6.4% By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- One First Union Center, DC-6 Charlotte, North Carolina 28288-0166 Phone: 704/383-1967 Facsimile: 704/383-6205 Attention: Daniel J. Sullivan $16,000,000 MELLON BANK, N.A. Percentage of Aggregate Commitment: 6.4% By: ---------------------------------------------- Print Name: -------------------------------------- Title: ------------------------------------------- One Mellon Bank Center, Suite 2915 Pittsburgh, Pennsylvania 15258 Phone: 412/234-9625 Facsimile: 412/234-8657 Attention: Tom Greulich -78- EX-10.15 3 EXHIBIT 10.15 1 Exhibit 10.15 PROGRAM AGREEMENT FOR RETAIL VALUE INVESTMENT PROGRAM AMONG RETAIL VALUE MANAGEMENT, LTD. DEVELOPERS DIVERSIFIED REALTY CORPORATION AND THE PRUDENTIAL INSURANCE COMPANY OF AMERICA 2
TABLE OF CONTENTS SECTION PAGE - ------- ---- ARTICLE I DEFINITIONS AND INTERPRETATION 1.1 Definitions 1 1.2 Interpretation 4 ARTICLE II FORMATION OF VENTURES 2.1 Formation of the Ventures 4 2.2 Aggregate Commitment of DDRC and PREI Investors 5 2.3 Funding of General Partner Shortfalls 5 ARTICLE III COVENANTS OF THE PARTIES 3.1 Expenses 6 3.2 Implementing Agreement 6 3.3 Confidentiality 6 3.4 Public Announcements 7 3.5 Compliance with Applicable Law 7 3.6 Leverage Policy 7 3.7 Role of PREI 7 3.8 Informational Meetings 7 3.9 Restrictions on Investment 8 3.10 Formation of Similar Partnerships 9 3.11 Successive Disapprovals 9 ARTICLE IV CONDITIONS PRECEDENT 4.1 Conditions Precedent of PIC 10 4.2 Conditions Precedent of the General Partner 10 4.3 Conditions Precedent of DDRC 11 ARTICLE V CLOSING 12
3 ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1 Representations and Warranties of DDRC 12 6.2 Representations and Warranties of PREI 13 6.3 Representations and Warranties of the General Partner 15 ARTICLE VII TERMINATION 16 ARTICLE VIII INDEMNIFICATION 8.1 Indemnification by DDRC 16 8.2 Indemnification by the General Partner 16 8.3 Indemnification by PIC 17 8.4 Claims 17 8.5 Insurance or Third-Party Indemnification 18 ARTICLE IX MISCELLANEOUS 9.1 Notices 18 9.2 No Third-Party Beneficiaries 19 9.3 No Assignment 19 9.4 Execution in Counterparts 20 9.5 Amendments 20 9.6 Validity 20 9.7 Governing Law 20 9.8 Jurisdiction 20 9.9 Arbitration 20 9.10 Waiver of Jury Trial 21 9.11 Waiver 21 9.12 Binding Effect 21 9.13 Entire Agreement 21 9.14 Remedies Not Exclusive 21 EXHIBITS - -------- Exhibit A Form of Limited Partnership Agreement Exhibit B Capital Commitments
4 PROGRAM AGREEMENT THIS PROGRAM AGREEMENT for RETAIL VALUE INVESTMENT PROGRAM is made and entered into as of February 11, 1998, by and among The Prudential Insurance Company of America, a New Jersey corporation ("PIC"), through one of its divisions, Prudential Real Estate Investors ("PREI"), Retail Value Management, Ltd., an Ohio limited liability company (the "General Partner"), and Developers Diversified Realty Corporation, an Ohio corporation ("DDRC"). W I T N E S E T H : WHEREAS, the General Partner intends to identify debt or equity interests in real estate assets or businesses related to retail uses (or options or other instruments related thereto) in transactions in which the asset and/or the seller is distressed due to over-leverage, weak ownership, financial pressures, or other factors, or where temporary imbalance in supply and demand, market illiquidity, time-sensitive sellers or other factors permit an opportunistic purchase (each an "Eligible Investment"), and if any such Eligible Investment is approved by PREI and DDRC, the Eligible Investment shall be acquired by a Venture (as defined herein) in which DDRC and an account managed or advised by PREI are limited partners and the General Partner is the general partner; and WHEREAS, the Limited Partnership Agreement (as defined herein) for each Venture shall provide that each Eligible Investment may be managed, developed and monitored by DDRC pursuant to a management agreement between DDRC and such Venture. NOW, THEREFORE, in consideration of the premises and the mutual covenants of the parties hereto, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND INTERPRETATION 1.1 DEFINITIONS. Whenever used in this Agreement, including the Recitals, the following terms have the meanings assigned below: "Account" shall have the meaning ascribed thereto in the Limited Partnership Agreements. "Affiliate" shall mean, when used with reference to a specified Person, (a) any Person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified Person, (b) any Person who is an officer or director of a specified Person or Person who serves in a similar capacity with respect to a 5 specified Person or is a spouse or relative of a specified Person and (c) any Person which, directly or indirectly, is the beneficial owner 10% or more of any class of equity securities of the specified Person or of which the specified Person is directly or indirectly the owner of 10% or more of any class of equity securities. No Venture shall be deemed to be an Affiliate of the General Partner, DDRC or PREI for the purposes of this Agreement. "Aggregate Contribution" shall mean the aggregate amount committed to be invested in all Ventures by the PREI Investors, DDRC, and the General Partner as set forth on Schedule B (without taking into account Returned Capital). "Agreement" shall mean this Agreement, as amended, modified, supplemented or restated from time to time. "Approved Investment" means an Eligible Investment proposed by the General Partner which is approved by PREI and DDRC for acquisition and investment by a Venture in accordance with this Agreement and the applicable Limited Partnership Agreement. "Available Contribution" shall have the meaning ascribed thereto in the Limited Partnership Agreements. "Capital Commitments" means the capital commitment and obligation of each PREI Investor and DDRC to contribute capital and invest in Ventures in accordance with this Agreement, subject to Section 2.2 and subject to the limitations set forth in the Limited Partnership Agreements. "Closing" shall mean the consummation of the formation of the Ventures in accordance with this Agreement. "Closing Date" shall have the meaning set forth in Article V. "Commitment Period" shall have the meaning ascribed thereto in the Limited Partnership Agreements. "Eligible Investment" is defined in the Recital. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Funded Contribution" shall have the meaning ascribed thereto in the Limited Partnership Agreements. "Funding Notice" shall have the meaning ascribed thereto in the Limited Partnership Agreements. -2- 6 "Full Investment Date" shall mean the date on which the Ventures have invested or committed for investment 80% of the Aggregate Contribution. "Investment Committee" shall mean the investment management committee of PREI. "Limited Partners" shall mean the limited partners of the Limited Partnerships. "Limited Partnership Agreement" shall mean, with respect to a particular Venture, a limited partnership agreement among the General Partner, DDRC and PREI containing the substantive provisions in the form of agreement attached hereto as Exhibit A, together with such amendments thereto as may be necessary to reflect any additional terms of a particular Venture to which the General Partner, DDRC and PREI have mutually agreed. "Loss" or "Losses" means all liabilities, losses, costs, damages (including punitive, consequential and treble damages), penalties or expenses (including, without limitation, reasonable attorneys' fees and expenses and costs of investigation and litigation), and also including any expenditures or expenses incurred to cover, remedy or rectify any such Losses. "Person" shall mean an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity. "PREI Investors" means accounts managed or advised by PREI. "Program" is defined in Section 2.1. "Real Estate Investment" means any debt or equity interest (or options or other instruments related thereto) in or relating to real estate used for retail purposes, including, without limitation, power, community, entertainment, neighborhood and strip shopping centers and enclosed malls (including pools or portfolios thereof), or companies which own such real estate. "Returned Capital" shall mean amounts distributed to the partners of the Ventures, during the Commitment Period as a return of capital pursuant to Section 5.02 of the Limited Partnership Agreements. "Shortfalls" is defined in Section 2.3. -3- 7 "Shortfall Contribution Amount" is defined in Section 2.3. "Summary Proposal" shall have the meaning ascribed thereto in the Limited Partnership Agreements. "Transaction Documents" shall mean with respect to a particular Venture, this Agreement and the Limited Partnership Agreement for such Venture. "Venture" shall mean a limited partnership formed by DDRC, the General Partner, and PREI pursuant to this Agreement for the purpose of acquiring Approved Investments, which limited partnership shall be governed by a Limited Partnership Agreement. 1.2 INTERPRETATION. The headings preceding the text of Articles and Sections included in this Agreement and the headings to the Schedules attached to this Agreement are for convenience of reference only and shall not be deemed a part of this Agreement or be given any effect in interpreting this Agreement. The use of masculine, feminine or neuter gender or the singular or plural form of words herein shall not limit the applicability of any provision of this Agreement to such gender or form. The use of the term "including" or "include" shall in all cases herein mean "including, without limitation" or "include, without limitation," respectively. Underscored references to Articles, Sections, clauses, Exhibits or Schedules shall refer to those portions of this Agreement, and any underscored reference to a clause shall, unless otherwise identified refer to the appropriate clause within the same Section in which such reference occurs. The use of the terms "hereunder," "hereof," "hereto" and words of similar import shall refer to this Agreement as a whole and not to any particular Article, Section or clause of, or Exhibit or Schedule to, this Agreement. ARTICLE II FORMATION OF VENTURES 2.1 FORMATION OF THE VENTURES. At the Closing, the General Partner, DDRC or a Person in which DDRC, directly or indirectly, owns 100% of such Person's equity securities, and PREI will enter into Limited Partnership Agreements to form the Ventures for the purposes of directly or indirectly acquiring, owning, managing, selling and disposing of Approved Investments. The Ventures will invest with the goal of providing a pre-tax rate of return of at least 15% per annum, compounded annually. DDRC will contribute 25% and the PREI Investor participating in a Venture will contribute 75%, of the aggregate capital contributed to such Venture by its Limited Partners, subject to Sections 2.2 and 2.3. This Agreement and its exhibits and the transactions contemplated hereby and thereby are referred to as the "Program." -4- 8 2.2 AGGREGATE COMMITMENT OF DDRC AND PREI INVESTORS. Except as otherwise agreed by the General Partner, DDRC and PREI, DDRC agrees to make an aggregate Capital Commitment of $70,000,000 to the Ventures and PREI agrees to cause the PREI Investors to make an aggregate Capital Commitment of $210,000,000 to the Ventures; provided, however, that in response to a proposed Eligible Investment that exceeds any PREI's Investor remaining Capital Commitment, PREI may increase such PREI Investor's Capital Commitment by an amount of up to 20% in order for such PREI Investor to participate in such Eligible Investment; it being understood in such event that (i) the obligations of the General Partner under Sections 3.9 and 3.10 shall be determined as if such increase had not taken place and (ii) each of the General Partner and DDRC shall be required to increase its Capital Commitment with respect to such Venture by the same percentage by which PREI increased its Capital Commitment. As of a result of such an increase of a PREI Investor's Capital Commitment, the Program may make investments which utilize the full amount of the Aggregate Contribution without fully calling certain PREI Investors' Capital Commitments. The individual Capital Commitment of each Limited Partner is not to exceed the amount set forth opposite such partner's name on Exhibit B, subject to increase as provided in the preceding sentence. Subject to the terms and conditions of this Agreement, each of DDRC and the PREI Investors will fund their Capital Commitment with respect to each Venture in such amounts and at such times as shall be specified in the Limited Partnership Agreement applicable to such Venture. 2.3 FUNDING OF GENERAL PARTNER SHORTFALLS. (a) DDRC shall have the option, but not the obligation, to fund operating budget shortfalls of the General Partner in an aggregate amount of up to $4,000,000 (the "Shortfalls"). Each of the parties hereto agrees that, on the earlier of (a) the last day of the latest Commitment Period under each Limited Partnership Agreement or (b) the day on which the partners in all of the Ventures shall have invested an aggregate amount of at least $280,000,000 in the Ventures, such party shall take all action necessary to assure that (i) DDRC shall be given credit for making capital contributions to the Ventures for payment of Shortfalls in an aggregate amount (the "Shortfall Contribution Amount") equal to the aggregate amount of all of the Shortfalls funded by DDRC, plus an amount equal to 10% per annum on each payment of a Shortfall calculated on and from the date such Shortfall is funded by DDRC to and including such earlier date, and (ii) the Shortfall Contribution Amount shall be allocated among the Ventures based on the aggregate Funded Contributions of the Limited Partners in the Ventures. In no event shall DDRC receive, pursuant to this Section 2.3, credit for making capital contributions to any Venture in excess of the product of (A) $4,000,000, plus an amount equal to 10% per annum on $4,000,000 calculated on and from the date of this Agreement to and including such earlier date, multiplied by (B) a fraction, the numerator of which is the aggregate contributions of -5- 9 the Limited Partners to such Venture (without regard to any capital returned to such Limited Partners but including any Returned Capital which shall be reinvested by such Venture) and the denominator of which is the sum of (i) $280,000,000 plus (ii) any increase in the aggregate commitments of the Ventures pursuant to Section 2.2 plus (iii) any Returned Capital which shall be reinvested by any of the Ventures. (b) DDRC shall inform PREI in writing promptly after funding any Shortfall of the amount of such funding. PREI shall have the right, upon reasonable notice, to review the General Partner's books and records as necessary to confirm the General Partner's budget, Shortfalls and other matters necessary to review the calculations set forth in this Section 2.3. ARTICLE III COVENANTS OF THE PARTIES 3.1 EXPENSES. Each party hereto shall bear its own expenses with respect to this Agreement. Each Venture shall be responsible for other expenses of organizing the Program to the extent provided in the Limited Partnership Agreements, it being understood that each party shall be responsible for its own attorneys' and accountants' fees incurred in connection with the organization of the Program. Notwithstanding the foregoing, the General Partner shall pay any fee payable to CS Securities without credit therefor as a capital contribution under any Limited Partnership Agreement. 3.2 IMPLEMENTING AGREEMENT. Each of the General Partner, DDRC and PREI shall take all reasonable actions required to fulfill their respective obligations to one another hereunder and shall otherwise use their respective reasonable efforts to facilitate the consummation of the transactions contemplated hereby. Each of the General Partner, DDRC and PREI agrees that it will not take any action that would have the effect of preventing or impairing its ability to perform its obligations hereunder. 3.3 CONFIDENTIALITY. Except as otherwise provided below, each party hereto shall maintain all information furnished to it by its counterparties hereto with respect to the subject matter of this Agreement in strict confidence in accordance with the procedures it uses to protect its own information of a similar nature, provided that PREI may disclose such information to the PREI Investors and each party and such PREI Investors may disclose such information to its officers, directors, employees, accountants, financial advisors, consultants, attorneys and appraisers. Notwithstanding the foregoing, no party shall be required to maintain in confidence information which (i) such party is compelled to disclose by judicial or administrative requirements of law, provided that if permitted by law, such party shall -6- 10 promptly inform its counterparties hereto of the request to disclose, and as such counterparties may reasonably request, such party shall assist such counterparties, at the expense of such counterparties, in any effort by such counterparties to obtain a protective order with respect to such information, (ii) becomes generally available to the public other than through a disclosure by such party, (iii) is lawfully known to such party prior to its disclosure by such counterparties to such party or (iv) becomes available to such party on a non-confidential basis from a source which was not known by such party to be bound by any legal or contractual obligation of confidentiality with respect to such information. 3.4 PUBLIC ANNOUNCEMENTS. No party hereto (or any of its Affiliates) shall make any public statement, including, without limitation, any press release, with respect to this Agreement and the transactions contemplated hereby, without the prior written consent of PREI, the General Partner and DDRC (which consent may not be unreasonably withheld), except as may be required by law. If a disclosure is required by law, the disclosing party shall make reasonable efforts to afford the other parties hereto an opportunity to review and comment on the proposed disclosure prior to the making of such disclosure. 3.5 COMPLIANCE WITH APPLICABLE LAW. Each of the parties hereto agrees, and agrees to cause their respective Affiliates, shareholders, controlling persons, officers, directors, partners, members, employees, representatives or agents to comply in all material respects with all applicable laws, rules and regulations in connection with any and all matters relating to the Program or the performance of their obligations hereunder. 3.6 LEVERAGE POLICY. The parties acknowledge that, subject to Limited Partner approval, the Ventures intend to leverage the Approved Investments and, if desirable, to refinance the Approved Investments. The parties anticipate that acquisition financing will range from 50% to 85% of the cost of each acquisition and each Venture generally will maintain a leverage ratio of 65%. 3.7 ROLE OF PREI. In no event will PREI, PIC or any of its Affiliates be obligated with regard to the Capital Commitments of any PREI Investor. 3.8 INFORMATIONAL MEETINGS. The General Partner agrees to hold meetings with PREI and DDRC at reasonable times and upon reasonable notice to review and discuss the status of Eligible Investments, Approved Investments, Venture activities and other Program matters. Such meetings shall be held at the corporate headquarters of PREI unless PREI otherwise agrees. PREI and DDRC may designate any one or more representatives to attend such meetings. -7- 11 3.9 RESTRICTIONS ON INVESTMENT. (a) Except for the account of a Venture and except as described below, the General Partner shall not at any time engage in any business other than acting as general partner of limited partnerships in which a PREI Investor is a limited partner and, without limiting the foregoing, shall not at any time acquire any Real Estate Investment which the General Partner believes is consistent with the Ventures' investment objectives from the date of this Agreement until the earliest of (y) the expiration of the Commitment Period of each Venture or (z) the date of the dissolution of a Venture or Ventures so that no Ventures shall exist after such date and the Program shall be terminated; provided, however, that (i) any Real Estate Investment that was not approved by or not presented to the Investment Committee pursuant to Section 3.06 of a Limited Partnership Agreement after its Summary Proposal was approved by DDRC and PREI shall not be subject to this restriction so long as such Real Estate Investment shall be acquired (A) on substantially the same terms that were presented to PREI and DDRC by the General Partner, and (B) only by the General Partner and/or DDRC or a Person in which DDRC, directly or indirectly, owns 100% of such Person's equity securities, and (ii) investments permitted by Section 3.10 hereof to be made by the General Partner or its Affiliates through partnerships or other entities shall not be subject to this restriction. (b) Nothing in this Section 3.9 shall preclude DDRC from acting, in its individual capacity, for its own account; provided, however, that during the Commitment Period, DDRC will offer to a Venture any investment opportunity that is generated by or presented to DDRC that DDRC believes is consistent with the Ventures' investment objective and that DDRC has determined not to pursue for investment. DDRC shall be permitted to acquire any Real Estate Investment that was not approved by PREI pursuant to Section 3.06 of a Limited Partnership Agreement. (c) The PREI Investors shall be prohibited from investing in any proposed Eligible Investment that was either disapproved by or not be presented to the Investment Committee unless (A) more than six months have elapsed since the date such proposed Eligible Investment was disapproved by or PREI advised the General Partner that it would not be presented to the Investment Committee, (B) PREI became aware of such proposed Eligible Investment prior to the presentation by the General Partner of such proposed Eligible Investment and informed the General Partner of such awareness as promptly as reasonably practicable following the General Partner's presentation thereof to PREI, (C) such Eligible Investment was presented to PREI as part of a portfolio of properties which differed from the portfolio presented by the General Partner and such proposed Eligible Investment represented less than 20% of the aggregate investments in such different portfolio, (D) PREI was presented a portfolio of properties which differed from such proposed Eligible Investment such that the -8- 12 properties in the different portfolio which were included in such proposed Eligible Investment represented less than 20% of such proposed Eligible Investment, (E) no beneficiary of PREI's investment in such proposed Eligible Investment shall include any of the Persons included on Schedule II attached hereto or (F) the PREI Investor's investment in such proposed Eligible Investment shall be a debt investment with no participation features or provisions entitling the PREI Investors to a share of appreciation cash flow. 3.10. FORMATION OF SIMILAR PARTNERSHIPS. The General Partner or its Affiliates may form and market other limited partnerships or other entities similar to the Ventures and may sell, market or distribute limited partnership interests or other interests or securities in such limited partnerships or other entities formed by it; provided, however, that the General Partner and its Affiliates shall not commence the investment activities of any such limited partnership or entity (to the extent such investments would otherwise be prohibited by Section 3.09) prior to the earliest of (i) the Full Investment Date, (ii) the expiration of the Commitment Period of each Venture or (iii) the date of the dissolution of a Venture or Ventures so that no Ventures shall exist after such date and the Program shall be terminated. If the Ventures shall have invested or committed for investment at least 80% of the Aggregate Contribution, then the General Partner and its Affiliates shall have the option of commencing the investment activities of another entity formed in accordance with the immediately preceding sentence, if such entity offers to the Limited Partners the opportunity to subscribe on a pro rata basis for the equity interests therein. The portion of interests therein allocable to Limited Partners who have not elected to invest in such entity shall be made available to Limited Partners who have elected to invest therein, who may (but shall not be obligated to) invest additional amounts on a pro rata basis among those parties who elect to invest such additional amounts. Except as provided in this Section 3.10, neither DDRC nor any of its Affiliates shall have any obligation to offer a participation in any such subsequent limited partnership or entity to any Limited Partner. 3.11. SUCCESSIVE DISAPPROVALS. Each time that two successive proposed Eligible Investments that were the subject of Summary Proposals are either disapproved by or not presented to the Investment Committee, the General Partner and its Affiliates shall no longer be bound by the provisions of Sections 3.09 and 3.10 with respect to the third proposed Eligible Investment that is either disapproved by or not presented to the Investment Committee; provided that (i) such third proposed Partnership Investment is disapproved by the Investment Committee, or PREI advised the General Partner that it would not be presented to the Investment Committee, on a date that is at least six months from the date hereof and (ii) for purposes of this sentence, only an Eligible Investment with an aggregate cost of at least $20,000,000 shall be considered a "proposed Eligible Investment." -9- 13 ARTICLE IV CONDITIONS PRECEDENT 4.1 CONDITIONS PRECEDENT OF PIC. Without limiting the scope of all conditions to be satisfied prior to PIC entering into the Limited Partnership Agreements and making the capital contributions contemplated thereby, it is contemplated that the following matters shall have been completed to the satisfaction of or waived by PREI prior thereto: (a) FULFILLMENT OF OBLIGATIONS. Each of DDRC and the General Partner shall have complied in all material respects with all of its obligations and covenants under this Agreement with respect to the Ventures required to be performed by it on or before the Closing Date; (b) REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of DDRC and the General Partner hereunder shall be true, correct and complete in all material respects on and as of the Closing Date as if made on the Closing Date; (c) DELIVERY OF DOCUMENTS. Each of DDRC and the General Partner shall have delivered all of the documents contemplated to be delivered by it pursuant to this Agreement, all in form and substance reasonably satisfactory to PREI; (d) LEGAL PROCEEDINGS. No order of any court or administrative agency shall be in effect that restrains or prohibits any of the transactions contemplated by this Agreement, and no suit, action, inquiry, investigation or proceeding in which it will be, or it is sought to restrain, prohibit or change the terms of or obtain damages or other relief in connection with this Agreement or any of the Limited Partnership Agreements, which in the judgment of PREI makes it inadvisable to proceed with the consummation of such transactions, shall have been instituted by any Person; and (e) ERISA. PREI shall have satisfied itself that the transactions contemplated to be taken on the Closing Date will not result in a prohibited transaction under ERISA. 4.2 CONDITIONS PRECEDENT OF THE GENERAL PARTNER. Without limiting the scope of all conditions to be satisfied prior to the General Partner entering into the Limited Partnership Agreements, it is contemplated that the following matters shall have been completed to the satisfaction of or waived by the General Partner prior thereto: (a) FULFILLMENT OF OBLIGATIONS. Each of DDRC and PREI shall have complied in all material respects with all of its -10- 14 obligations and covenants under this Agreement with respect to the Ventures required to be performed by it on or before the Closing Date; (b) REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of PREI and DDRC hereunder shall be true, correct and complete in all material respects on and as of the Closing Date as if made on the Closing Date; (c) DELIVERY OF DOCUMENTS. Each of PREI and DDRC shall have delivered all of the documents contemplated to be delivered by it pursuant to this Agreement all in form and substance reasonably satisfactory to the General Partner; and (d) LEGAL PROCEEDINGS. No order of any court or administrative agency shall be in effect that restrains or prohibits any of the transactions contemplated by this Agreement, and no suit, action, inquiry, investigation or proceeding in which it will be, or it is sought to restrain, prohibit or change the terms of or obtain damages or other relief in connection with this Agreement or the Limited Partnership Agreements, which in the judgment of the General Partner makes it inadvisable to proceed with the consummation of such transactions, shall have been instituted by any Person. 4.3 CONDITIONS PRECEDENT OF DDRC. Without limiting the scope of all conditions to be satisfied prior to DDRC entering into the Limited Partnership Agreements and making the capital contributions contemplated thereby, it is contemplated that the following matters shall have been completed to the satisfaction of or waived by DDRC prior thereto: (a) FULFILLMENT OF OBLIGATIONS. Each of the General Partner and PREI shall have complied in all material respects with all of its obligations and covenants under this Agreement with respect to the Ventures required to be performed by it on or before the Closing Date; (b) REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of PREI and the General Partner hereunder shall be true, correct and complete in all material respects on and as of the Closing Date as if made on the Closing Date; (c) DELIVERY OF DOCUMENTS. Each of PREI and the General Partner shall have delivered all of the documents contemplated to be delivered by it pursuant to this Agreement all in form and substance reasonably satisfactory to the General Partner; and (d) LEGAL PROCEEDINGS. No order of any court or administrative agency shall be in effect that restrains or -11- 15 prohibits any of the transactions contemplated by this Agreement, and no suit, action, inquiry, investigation or proceeding in which it will be, or it is sought to restrain, prohibit or change the terms of or obtain damages or other relief in connection with this Agreement or the Limited Partnership Agreements, which in the judgment of the General Partner makes it inadvisable to proceed with the consummation of such transactions, shall have been instituted by any Person. ARTICLE V CLOSING The Closing shall take place by mail or telefax on the date hereof after the satisfaction or waiver of each of the conditions precedent with respect to the Ventures (which shall include without limitation all of the conditions precedent set forth in Sections 4.1, 4.2 and 4.3 hereof), or on such other day as DDRC, the General Partner and PREI shall agree or at such other place as DDRC, the General Partner and PREI shall agree (such date referred to as the "Closing Date"). ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1 REPRESENTATIONS AND WARRANTIES OF DDRC. DDRC hereby represents and warrants to PREI and the General Partner as follows: (a) DDRC is a corporation duly incorporated and validly existing under the laws of the State of Ohio, with all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. DDRC has all requisite power and authority to enter into the Transaction Documents and to carry out the transactions contemplated hereby and thereby. (b) DDRC, by executing this Agreement, represents and warrants that it is an accredited investor, that its interests in the Ventures will be acquired by it for its own account, for investment and not with a view to resale or distribution thereof. (c) The execution and delivery of the Transaction Documents and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of DDRC. The Transaction Documents have been or will be executed and delivered by a duly authorized officer of DDRC and constitute, or will constitute upon execution and delivery, the valid and -12- 16 binding obligations of DDRC enforceable against DDRC in accordance with the terms hereof and thereof, subject as to enforcement to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general principles of equity. (d) The execution, delivery and performance of the Transaction Documents by DDRC do not or will not: (i) violate any decree or judgment of any court or governmental authority that may be applicable to DDRC, (ii) violate any law (or regulation promulgated under any law), (iii) violate or conflict with, or result in a breach of, or constitute a default (or an event with or without notice or lapse of time or both would constitute a default) under, any contract or agreement to which DDRC is a party or (iv) violate or conflict with any provision of the organizational documents of DDRC. (e) No broker, finder, agent or other intermediary has been employed by or on behalf of DDRC in connection with the negotiation or consummation of this Agreement, and no such party has any claim for any commission, finder's fee or similar amount payable as a result of any engagement of such party by DDRC. (f) None of DDRC nor any officer, director, employee, or agent of DDRC exercising any authority or conduct with respect to this Agreement or any Venture or the assets thereof, have prior to the date hereof or the term of this Agreement or of any Venture, been convicted of a crime described in Section 411 of ERISA. 6.2 REPRESENTATIONS AND WARRANTIES OF PREI. PREI hereby represents and warrants to DDRC and the General Partner as follows: (a) PIC is a corporation duly formed and validly existing under the laws of the State of New Jersey, with all requisite power and authority to carry on its business as now being conducted. PIC has all requisite power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. (b) PIC, by executing this Agreement, represents and warrants that it and each PREI Investor is an accredited investor, that its interests in the Ventures will be acquired for the PREI Investor's own account, or for the account of a commingled pension trust or other institutional investor previously specified in writing to the General Partner with respect to whom it has full investment discretion, for investment and not with a view to resale or distribution thereof. (c) The execution and delivery of the Transaction Documents and the consummation of the transactions -13- 17 contemplated thereby have been duly authorized by all necessary corporate action on the part of PIC. The Transaction Documents have been or will be executed and delivered by a duly authorized officer of PIC and constitute, or will constitute upon execution and delivery, the valid and binding obligations of the PREI Investors enforceable against the PREI Investors in accordance with the terms hereof and thereof, subject as to enforcement to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general principles of equity. (d) PIC has full power and authority to act on behalf of each PREI Investor and to bind each PREI Investor to the Limited Partnership Agreement to which such PREI Investor is a party. Upon execution and delivery, each Limited Partnership Agreement to which a PREI Investor is a party will constitute the valid and binding obligations of such PREI Investor in accordance with the terms thereof, subject as to enforcement to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general principles of equity. (e) The execution, delivery and performance of the Transaction Documents by PIC and by each PREI Investor do not or will not: (i) violate any decree or judgment of any court or governmental authority that may be applicable to PIC, PREI or a PREI Investor, (ii) violate any law (or regulation promulgated under any law), (iii) violate or conflict with, or result in a breach of, or constitute a default (or an event with or without notice or lapse of time or both would constitute a default) under, any contract or agreement to which PIC, PREI or a PREI Investor is a party or (iv) violate or conflict with any provision of the organizational documents of PIC or a PREI Investor. (f) No broker, finder, agent or other intermediary has been employed by or on behalf of PIC, PREI or any PREI Investor in connection with the negotiation or consummation of this Agreement, and no such party has any claim for any commission, finder's fee or similar amount payable as a result of any engagement of such party by PIC, PREI or any PREI Investor. (g) Each PREI Investor which is deemed to hold ERISA plan assets within the meaning of 29 CFR ss. 2510.101-3 shall either (i) be an insurance company pooled separate account within the meaning of Prohibited Transaction Exemption 90-1, 55 Fed. Reg. 2891 (Jan. 29, 1990) or (ii) be an investment fund with respect to which PREI serves as a qualified professional asset manager as defined in Prohibited Transaction Exemption 84-14, 49 Fed. Reg. 9494 (Mar. 13, 1984) and 50 Fed. Reg. 41430 (Oct. 10, 1985). -14- 18 6.3 REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNER. The General Partner hereby represents and warrants to PREI and DDRC as follows: (a) The General Partner is a limited liability company duly organized and validly existing under the laws of the State of Ohio, with all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. DDRC has all requisite power and authority to enter into the Transaction Documents and to carry out the transactions contemplated thereby. (b) The General Partner, by executing this Agreement, represents and warrants that it is an accredited investor, that its interests in the Ventures will be acquired by it for its own account, for investment and not with a view to resale or distribution thereof. (c) The execution and delivery of the Transaction Documents and the consummation of the transactions contemplated thereby have been duly authorized by all necessary limited liability company action on the part of the General Partner. The Transaction Documents have been or will be executed and delivered by a duly authorized member of the General Partner and constitute, or will constitute upon execution and delivery, the valid and binding obligations of the General Partner enforceable against the General Partner in accordance with the terms thereof, subject as to enforcement to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general principles of equity. (d) The execution, delivery and performance of the Transaction Documents by the General Partner do not or will not: (i) violate any decree or judgment of any court or governmental authority that may be applicable to the General Partner, (ii) violate any law (or regulation promulgated under any law), (iii) violate or conflict with, or result in a breach of, or constitute a default (or an event with or without notice or lapse of time or both would constitute a default) under, any contract or agreement to which the General Partner is a party or (iv) violate or conflict with any provision of the organizational documents of the General Partner. (e) Other than CS Securities, no broker, finder, agent or other intermediary has been employed by or on behalf of the General Partner in connection with the negotiation or consummation of this Agreement, and no such party has any claim for any commission, finder's fee or similar amount payable as a result of any engagement of such party by the General Partner. -15- 19 (f) None of the General Partner nor any member, manager, employee, or agent of the General Partner exercising any authority or conduct with respect to this Agreement or any Venture or the assets thereof, have prior to the date hereof or the term of this Agreement or of any Venture, been convicted of a crime described in Section 411 of ERISA. ARTICLE VII TERMINATION Except for the provisions of Sections 3.1, 3.3 and 3.4 as well as Article VIII, this Agreement will terminate upon the termination of all of the Limited Partnership Agreements. ARTICLE VIII INDEMNIFICATION 8.1 INDEMNIFICATION BY DDRC. DDRC agrees to indemnify each of the General Partner, PIC, PREI and the PREI Investors against, and agrees to hold harmless each of the General Partner, PIC, PREI and the PREI Investors from, any and all Losses incurred or suffered by any of the General Partner, PIC, PREI or any PREI Investor relating to or arising out of or in connection with (i) any of the following with respect to PREI and the General Partner and (ii) paragraph (c) with respect to each Venture: (a) any breach of or any inaccuracy in any representation or warranty made by DDRC in this Agreement; PROVIDED that notice of their claim shall have been given to DDRC not later than the close of business on the third anniversary of the Closing Date; (b) any breach of or failure by DDRC to perform any covenant or obligation of DDRC set out or contemplated in this Agreement; PROVIDED that a notice of their claim shall have been given to DDRC prior to the expiration of the statute of limitations with respect to claims of the nature of the claim being asserted by any of the General Partner, PIC, PREI or any PREI Investor; and (c) all actions taken by shareholders of DDRC (acting as such) relating to or arising out of or in connection with DDRC's participation in the Program. 8.2 INDEMNIFICATION BY THE GENERAL PARTNER. The General Partner agrees to indemnify each of DDRC, PIC, PREI and the PREI Investors against, and agrees to hold harmless each of DDRC, PIC, PREI and the PREI Investors from, any and all Losses incurred or -16- 20 suffered by any of DDRC, PIC, PREI or any PREI Investor relating to or arising out of or in connection with any of the following: (a) any breach of or any inaccuracy in any representation or warranty made by the General Partner in this Agreement; PROVIDED that notice of their claim shall have been given to the General Partner not later than the close of business on the third anniversary of the Closing Date; and (b) any breach of or failure by the General Partner to perform any covenant or obligation of the General Partner set out or contemplated in this Agreement; PROVIDED that a notice of their claim shall have been given to the General Partner prior to the expiration of the statute of limitations with respect to claims of the nature of the claim being asserted by any of DDRC, PIC, PREI or any PREI Investor. 8.3 INDEMNIFICATION BY PIC. PIC agrees to indemnify DDRC, the General Partner and each Venture against, and agrees to hold DDRC, the General Partner and each Venture harmless from, any and all Losses incurred or suffered by DDRC, the General Partner or any Venture relating to or arising out of or in connection with (i) any of the following with respect to DDRC and the General Partner and (ii) paragraph (c) with respect to each Venture: (a) any breach of or any inaccuracy in any representation or warranty made by PREI in this Agreement; PROVIDED that a notice of their claim shall have been given to PREI not later than the close of business on the third anniversary of the Closing Date; (b) any breach of or failure by PREI to perform any covenant or obligation of PREI set out or contemplated in this Agreement; PROVIDED that a notice of their claim shall have been given to PREI prior to the expiration of the statute of limitations with respect to claims of the nature of the claim being asserted by any of DDRC or the General Partner; or (c) all actions taken by a participant in or beneficiary of a PREI Investor (acting as such), relating to or arising out of or in connection with PIC's or PREI's or a PREI Investor's participation in the Program. 8.4 CLAIMS. As soon as is reasonably practicable after becoming aware of a claim for indemnification under this Agreement, the indemnified person shall promptly give notice to the indemnifying person of such claim and the amount the indemnified person will be entitled to receive hereunder from the indemnifying person; PROVIDED that the failure of the indemnified person to give notice shall not relieve the indemnifying person of its obligations under this Article VIII, except to the extent (if any) that the indemnifying person shall have been prejudiced thereby. If the indemnifying person does not object in writing to such -17- 21 indemnification claim within 30 days of receiving notice thereof, the indemnified person shall be entitled to recover promptly from the indemnifying person the amount of such claim, and no later objection by the indemnifying person shall be permitted. If the indemnifying person agrees that it has an indemnification obligation but objects that it is obligated to pay only a lesser amount, the indemnified person shall nevertheless be entitled to recover promptly from the indemnifying person the lesser amount, without prejudice to the indemnified person's claim for the difference. 8.5 INSURANCE OR THIRD-PARTY INDEMNIFICATION. Notwith- standing anything to the contrary herein, an indemnifying person shall not be liable for a Loss arising out of or in connection with any matter described in this Article VIII if and to the extent such Loss is covered by a policy of insurance or benefits from a right to indemnification from a Person not party to this Agreement and payment is made under such policy to the indemnified person by the insurer or under such right to indemnification by such Person, as applicable. Notwithstanding anything to the contrary herein, PREI, DDRC and the General Partner may acquire insurance against Losses arising in connection with this Agreement. ARTICLE IX MISCELLANEOUS 9.1 NOTICES. All notices and demands under this Agreement shall be in writing and may be either delivered personally (which shall include deliveries by courier), by telefax or other wire transmission (with request for assurance of receipt in a manner appropriate with respect to communications of that type, provided that a confirmation copy is concurrently sent by a nationally recognized express courier for overnight delivery) or mailed, postage prepaid, by certified or registered mail, return receipt requested. If to PREI, addressed as follows: Prudential Real Estate Investors 8 Campus Drive Parsippany, NJ 07054 Attention: Joseph D. Margolis Fax: (973) 683-1752 with a copy to: Mayer, Brown & Platt 190 S. LaSalle Street Chicago, IL Attention: Bert Krueger Fax: (312) 706-9122 -18- 22 If to the General Partner, addressed as follows: Retail Value Management, Ltd. The Heritage 34555 Chagrin Boulevard, Suite CC-2 Moreland Hills, Ohio 44022 Attention: Scott A. Wolstein Fax: (216) 247-0434 with a copy to: Albert T. Adams Baker & Hostetler LLP 3200 National City Center 1900 East 9th Street Cleveland, Ohio 44114 Fax: (216) 696-0740 If to DDRC: Developers Diversified Realty Corporation The Heritage 34555 Chagrin Boulevard Moreland Hills, Ohio 44022 Attention: James A. Schoff Fax: (216) 247-0434 With copy to: Albert T. Adams Baker & Hostetler LLP 3200 National City Center Cleveland, Ohio 44114 Fax: (216) 696-0740 Unless delivered personally or by telefax or other wire transmission (which shall be deemed delivered on the next business day following the date of such personal delivery or transmission), any notice shall be deemed to have been made three days following the date so mailed. Any party hereof may designate a different address to which notices and demands shall thereafter be directed by written notice given in the same manner and directed to the other parties at their offices. 9.2 NO THIRD-PARTY BENEFICIARIES. Other than the PREI Investors, the parties do not intend to confer any benefit hereunder on any Person other than the parties hereto and any Ventures that are formed as a result of the terms hereof. 9.3 NO ASSIGNMENT. No party hereto shall have the right to assign any right or obligation under this Agreement to any other -19- 23 Person, except that (i) DDRC shall have the right to assign all or any portion of its interest in any Venture to a Person in which DDRC, directly or indirectly, owns 100% of such Person's equity securities and (ii) each of the parties hereto shall be entitled to assign all or any portion of its interest in any Venture to the extent permitted by the applicable Limited Partnership Agreement. 9.4 EXECUTION IN COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which shall constitute one and same instrument. 9.5 AMENDMENTS. This Agreement may be amended, modified or supplemented but only in a writing signed by all of the parties. 9.6 VALIDITY. If any provision of this Agreement or the application of such provision to any Person or circumstance shall be held invalid, the remainder of this agreement or the application of such provision to Persons or circumstances other than those with respect to which it is held invalid shall not be affected thereby and shall continue to be binding and in force. 9.7 GOVERNING LAW. This Agreement and the rights of the parties hereunder shall be governed by and interpreted in accordance with the internal laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. 9.8 JURISDICTION. The parties hereto consent to personal jurisdiction in the State of Delaware and agree that the exclusive venue and place of trial for their solution of any disputes arising in connection with the interpretation or enforcement of this Agreement shall be the Federal District Court for the District of Delaware. 9.9 ARBITRATION. The parties hereby agree to submit all controversies, claims and matters in dispute in respect of this Agreement to arbitration in Wilmington, Delaware, according to the commercial arbitration rules of the American Arbitration Association from time to time in force. This submission and agreement to arbitrate shall be specifically enforceable. The parties may agree on a retired judge as sole arbitrator. In the absence of such agreement, there shall be three arbitrators, selected in accordance with the commercial arbitration rules of the American Arbitration Association: one attorney and/or retired judge, one expert in real estate investment; and one certified public accountant. A decision agreed on by two of the arbitrators shall be the decision of the arbitration panel; PROVIDED, HOWEVER, that in the case of monetary damages, if there is not agreement of two arbitrators as to the amount of the award, then the average of the two amounts that are closest to each other shall be the final award of the arbitration panel for the purpose of this Agreement. The arbitration panel may elect to specifically enforce this Agreement. The parties agree to abide by all awards rendered in such proceedings. Any award shall include costs and reasonable -20- 24 attorneys' fees to the successful party. Such awards shall be final and binding on all parties. There shall be no appeal therefrom other than for fraud or willful misconduct. All awards may be filed with the clerk of one or more courts, State or Federal, having jurisdiction over the party against whom such an award is rendered or its property as a basis of judgment and of the issuance of execution for its collection. Nothing in this Agreement and/or the exhibits hereto shall be deemed to prevent the arbitration panel from exercising authority to permit the exercise by a party of its legal and/or equitable remedies including right of offset and specific performance. The parties agree that this Section shall be valid, binding and enforceable and shall survive the termination of this Agreement. 9.10 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ANY RELATED DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE PARTIES HERETO. EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH RELATED DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER RELATED DOCUMENT. 9.11 WAIVER. The waiver by any party hereto of the breach of any term, covenant, agreement or condition herein contained shall not be deemed a waiver of any subsequent breach of the same or any other term, covenant, agreement or condition herein, nor shall any custom, practice or course of dealing arising among the parties hereto in the administration hereof by construed as a waiver or diminution of the right of any party hereto to insist upon the strict performance by any other party hereto of the terms, covenants agreements and conditions herein contained. 9.12 BINDING EFFECT. Except as herein otherwise provided, this Agreement shall be binding upon and inure to the benefit of the parties, their legal representatives, heirs, administrators, executors, successors and permitted assigns. 9.13 ENTIRE AGREEMENT. This Agreement, including the Schedules and Exhibits hereto, constitutes the entire understanding and agreement of the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements and understandings, written or oral, between the parties with respect to the subject matter hereof. 9.14 REMEDIES NOT EXCLUSIVE. Any remedies herein contained for breaches of obligations hereunder shall not be redeemed to be exclusive and shall not impair the right of any party to exercise any other right or remedy, whether for damages, injunction or otherwise. -21- 25 IN WITNESS WHEREOF, this Agreement has been executed by each of the parties hereto as of the date of this Agreement set forth above. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ [ILLEGIBLE SIGNATURE] ----------------------------- Name: [ILLEGIBLE NAME] ---------------------- Title: Vice President ---------------------- DEVELOPERS DIVERSIFIED REALTY CORPORATION By: /s/ Scott A. Wolstein ----------------------------- Name: Scott A. Wolstein ---------------------- Title: President ---------------------- RETAIL VALUE MANAGEMENT, LTD. By: /s/ Scott A. Wolstein ----------------------------- Name: Scott A. Wolstein ---------------------- Title: Managing Member ---------------------- -22- EX-10.16 4 EXHIBIT 10.16 1 Exhibit 10.16 SHARE OPTION AGREEMENT ---------------------- THIS AGREEMENT is made as of the 15th day of April 1997, by and between DEVELOPERS DIVERSIFIED REALTY CORPORATION, an Ohio corporation (the "Company"), and Scott A. Wolstein, an individual (the "Holder"). W I T N E S S E T H: -------------------- WHEREAS, the Company desires to provide the Holder with an option to purchase 150,000 Common Shares, without par value, of the Company ("Shares); and WHEREAS, the Holder desires to accept such option; NOW, THEREFORE, in consideration of the mutual covenants herein set forth, the parties hereto hereby agree as follows: 1. GRANT OF OPTION. The Company does hereby irrevocably grant to the Holder, and the Holder does hereby accept, the right and option (the "Option") to purchase, at the option of the Holder, 150,000 Shares at the exercise price of $36.50 per Share and upon the terms and subject to the conditions hereof. Notwithstanding the foregoing, if at any time or from time to time the number of Shares are increased or decreased, or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation (whether as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or other change in corporate structure of the Company affecting the Shares), then (a) there shall automatically be substituted, for each Share for which the Option has not been exercised, the number and kind of shares of stock or other securities into which each outstanding share shall be changed or for which each such share shall be exchanged and (b) the exercise price per Share shall be increased or decreased proportionately so that the aggregate exercise price for the Shares subject to the Option shall remain the same as immediately prior to such event. 2. TERM OF THE OPTION. The Option is exercisable, in whole or in part, on or after the date hereof; provided that in the event of a Change in Control (as defined below) or a Potential Change in Control (as defined below) the Option shall become fully exercisable and vested. (a) A "Change in Control" is defined by the occurrence of any of the following: (i) The Board of Directors of the Company (the "Board") or shareholders of the Company approve a consolidation or merger in which the Company is not the surviving corporation, the sale of substantially all of the assets of the Company, or the liquidation or dissolution of the Company; (ii) Any person or other entity (other than the Company or a Subsidiary or any Company employee benefit plan (including any trustee of any such plan acting in its capacity as trustee)) purchases any Shares (or securities convertible into Shares) pursuant to a tender or exchange offer without the prior consent of the Board or becomes the 2 beneficial owner of securities of the Company representing 20% or more of the voting power of the Company's outstanding securities; or (iii) During any two-year period, individuals who at the beginning of such period constitute the entire Board, cease to constitute a majority of the Board, unless the election or the nomination for election of each new director is approved by at least two-thirds of the directors then still in office who were directors at the beginning of that period. (b) A "Potential Change in Control" is defined by the happening of any one of the following: (i) The approval by the shareholders of the Company of an agreement by the Company, the consummation of which would result in a Change in Control of the Company; or (ii) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than the Company or a Subsidiary or any Company employee benefit plan (including any trustee of any such plan acting in its capacity as trustee)) of securities of the Company representing 5% or more of the combined voting power of the Company's outstanding securities and the adoption by the Board of a resolution to the effect that a Potential Change in Control of the Company has occurred for purposes of this Plan. The Option shall terminate on the tenth anniversary of the date hereof and must be exercised, if at all, on or before such date and shall not thereafter be exercisable, notwithstanding anything herein to the contrary. 3. EXERCISE. (a) Subject to the other terms and conditions hereof, the Option shall be exercisable, provided payment is made as provided below, from time to time by written notice to the Company (in the form required by the Company, the covenants and substantive provisions of which are hereby made part of this Agreement) which shall: (i) State that the Option is thereby being exercised, the number of Shares with respect to which the Option is being exercised, each person in whose name any certificates for the Shares should be registered and such person's address and social security number; (ii) Be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by anyone other than the Holder, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under all applicable laws and regulations; and (iii) Be accompanied by such representations, warranties or agreements with respect to the investment intent of such person or persons exercising the Option and the compliance with any applicable law or regulation or to confirm any factual matters as the Company or its counsel may reasonably request, in form and substance satisfactory to counsel for the Company. Page 2 3 (b) Payment of the exercise price may be made, in the discretion of the person exercising the Option, in one of the following manners, or in any other manner approved by the Board, in its sole discretion: (i) The written notice to the Company described above may be accompanied by full payment of the exercise price in cash or by check, or in whole or in part with a surrender or withholding of Shares of the Company having a Fair Market Value (as defined below) on the date of exercise equal to that portion of the exercise price for which payment in cash or check is not made. The value of each such Share surrendered or withheld shall be 100% of the Fair Market Value of the Shares on the date the Option is exercised. The latter of the dates on which such notice and payment are received by the Company shall be the date of exercise of the Option; and (ii) Within five days of the giving of the written notice to the Company described above, the funds to pay for the exercise of the Option may be delivered to the Company by a broker acting on behalf of the person exercising the Option either in connection with the sale of the Shares underlying the Option or in connection with the making of a margin loan to such person to enable payment of the exercise price of the Option. The latter of the dates on which the Company receives such notice and payment shall be the date of exercise of the Option. In connection with any such exercise, the Company will provide a copy of the notice of exercise of the Option to the aforesaid broker upon receipt by the Company of such notice and will deliver to such broker, within five business days of the delivery of such notice to the Company, a certificate or certificates (as requested by the broker) representing the number of Shares underlying the Option that have been sold by such broker for the person exercising the Option. (c) For purposes hereof, the "Fair Market Value" of a Share as of a given date shall be (in order of applicability): (i) the closing price of a Share on the principal exchange on which the Shares are then trading, if any, on the day immediately prior to such date, or if Shares were not traded on the day previous to such date, then on the next preceding trading day during which a sale occurred; or (ii) if Shares are not traded on an exchange but are quoted on NASDAQ or a successor quotation system, (A) the last sale price (if Shares are then listed as a National Market Issue under the NASD National Market System), or (B) if Shares are not then so listed, the mean between the closing representative bid and asked prices for Shares on the day previous to such date as reported by NASDAQ or such successor quotation system; or (iii) if Shares are not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for Shares, on the day previous to such date, as determined in good faith by the Board; or (iv) if Shares are not publicly traded, the fair market value established by the Board acting in good faith. (d) Upon exercise of the Option and the satisfaction of all conditions thereto, the Company shall deliver a certificate or certificates for Shares to the specified person or persons at the specified time upon receipt of payment for such Shares as set forth above. No Shares shall be issued on an exercise of an Option until full payment has been made. 4. DEATH AND DISABILITY. Upon the death or permanent and total disability of the Holder, the Option shall automatically become vested and fully exercisable, and the Option must be exercised, if at all, within the one-year period ending on the anniversary of such death or permanent and total disability. In the case of death, the Option shall be exercised by the Holder's estate or the person designated by the Holder by will, or as otherwise designated by the laws of descent and distribution. Notwithstanding the foregoing, in no event shall the Option be exercisable after April 15, 2007. For Page 3 4 purposes hereof, "permanent and total disability" means a permanent and total disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). 5. TRANSFERABILITY. The Option and the Holder's rights therein are not transferable by the Holder, except upon the death of the Holder as provided in Paragraph 4 except that the Holder may transfer the Option during his lifetime to one or more members of his family, to one or more trusts for the benefit of one or more members of his family, or to a partnership or partnerships of members of his family, provided that no consideration is paid for the transfer and that the transfer would not result in the loss of any exemption under Rule 16b-3 of the Exchange Act with respect to any Option. The Option is exercisable (subject to any other applicable restrictions on exercise) only by the Holder (or any guardian or other legal representative duly appointed for the Holder) for the Holder's own account, except in the events of the Holder's death or permanent and total disability as provided in Paragraph 4 or transfer as provided in this Paragraph 5. 6. TAXES. The Holder hereby agrees to pay to the Company any federal, state or local taxes of any kind that may be required by law to be withheld and remitted by the Company with respect to the Option and the exercise thereof. If the Holder does not make such payment to the Company, the Company, to the extent required or permitted by law, shall have the right to withhold from any payment of any kind otherwise due to the Holder from the Company, any federal, state or local taxes of any kind required by law to be withheld with respect to the Option or the Shares which are the subject of the Option. The Company, in its sole discretion, may permit the Holder to pay such taxes through the withholding of Shares otherwise deliverable to such the Holder upon exercise of the Option or the delivery to the Company of Common Shares otherwise acquired by the Holder. The fair market value of Common Shares withheld by the Company or tendered to the Company for the satisfaction of any tax withholding obligations determined to exist under this Paragraph 6 shall be determined on the date such Common Shares are withheld or tendered. 7. INTENT. The Option does not, and is intended not to, qualify as an "Incentive Stock Option" for purposes of Section 422A(b) of the Code. The Option shall be construed and exercised consistent with such intention. 8. SECURITIES LAW COMPLIANCE. Notwithstanding any provision of this Agreement to the contrary, the Option shall not be exercisable unless, at the time the Holder attempts to exercise the Option, in the opinion of counsel for the Company, all applicable securities laws, rules and regulations have been complied with. The Holder agrees that the Company may impose such restrictions on the Shares as are deemed advisable by the Company, including, without limitation, restrictions relating to listing or trading requirements. The Holder further agrees that certificates representing the Shares may bear such legends and statements as the Company shall deem appropriate or advisable to assure, among other things, compliance with applicable securities laws, rules and regulations. 9. RIGHTS OF THE HOLDER. The Holder shall have no dividend, voting or other rights of a shareholder with respect to the Shares which are subject to the Option prior to the purchase of such Shares upon exercise of the Option and the execution and delivery of all other documents and instruments deemed necessary or desirable by the Company. 10. MISCELLANEOUS. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, except to the extent otherwise governed by Federal law. Page 4 5 IN WITNESS WHEREOF, the parties have subscribed their names hereto as of the date first above written. DEVELOPERS DIVERSIFIED REALTY CORPORATION, an Ohio corporation By: /s/ James A. Schoff ------------------------------------------ James A. Schoff, Executive Vice President and Chief Operating Officer /s/ Scott A. Wolstein ------------------------------------------- Scott A. Wolstein Page 5 EX-10.17 5 EXHIBIT 10.17 1 Exhibit 10.17 SHARE OPTION AGREEMENT ---------------------- THIS AGREEMENT is made as of the 12th day of May 1997, by and between DEVELOPERS DIVERSIFIED REALTY CORPORATION, an Ohio corporation (the "Company"), and Scott A. Wolstein, an individual (the "Holder"). W I T N E S S E T H: -------------------- WHEREAS, the Company desires to provide the Holder with an option to purchase 200,000 Common Shares, without par value, of the Company ("Shares); and WHEREAS, the Holder desires to accept such option; NOW, THEREFORE, in consideration of the mutual covenants herein set forth, the parties hereto hereby agree as follows: 1. GRANT OF OPTION. The Company does hereby irrevocably grant to the Holder, and the Holder does hereby accept, the right and option (the "Option") to purchase, at the option of the Holder, 200,000 Shares at the following exercise prices: (a) 100,000 Shares at an exercise price of: $38.3125 per Share and (b) 100,000 Shares at the exercise price of $40.25 per Share, and upon the terms and subject to the conditions hereof. Notwithstanding the foregoing, if at any time or from time to time the number of Shares are increased or decreased, or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation (whether as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or other change in corporate structure of the Company affecting the Shares), then (x) there shall automatically be substituted, for each Share for which the Option has not been exercised, the number and kind of shares of stock or other securities into which each outstanding share shall be changed or for which each such share shall be exchanged and (y) the exercise price per Share shall be increased or decreased proportionately so that the aggregate exercise price for the Shares subject to the Option shall remain the same as immediately prior to such event. 2. TERM OF THE OPTION. The Option is exercisable, in whole or in part, on or after the date hereof; provided that in the event of a Change in Control (as defined below) or a Potential Change in Control (as defined below) the Option shall become fully exercisable and vested. (a) A "Change in Control" is defined by the occurrence of any of the following: (i) The Board of Directors of the Company (the "Board") or shareholders of the Company approve a consolidation or merger in which the Company is not the surviving corporation, the sale of substantially all of the assets of the Company, or the liquidation or dissolution of the Company; (ii) Any person or other entity (other than the Company or a Subsidiary or any Company employee benefit plan (including any trustee of any such plan acting in its capacity as trustee)) purchases any Shares (or securities convertible into Shares) pursuant 2 to a tender or exchange offer without the prior consent of the Board or becomes the beneficial owner of securities of the Company representing 20% or more of the voting power of the Company's outstanding securities; or (iii) During any two-year period, individuals who at the beginning of such period constitute the entire Board, cease to constitute a majority of the Board, unless the election or the nomination for election of each new director is approved by at least two-thirds of the directors then still in office who were directors at the beginning of that period. (b) A "Potential Change in Control" is defined by the happening of any one of the following: (i) The approval by the shareholders of the Company of an agreement by the Company, the consummation of which would result in a Change in Control of the Company; or (ii) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than the Company or a Subsidiary or any Company employee benefit plan (including any trustee of any such plan acting in its capacity as trustee)) of securities of the Company representing 5% or more of the combined voting power of the Company's outstanding securities and the adoption by the Board of a resolution to the effect that a Potential Change in Control of the Company has occurred for purposes of this Plan. The Option shall terminate on the tenth anniversary of the date hereof and must be exercised, if at all, on or before such date and shall not thereafter be exercisable, notwithstanding anything herein to the contrary. 3. EXERCISE. (a) Subject to the other terms and conditions hereof, the Option shall be exercisable, provided payment is made as provided below, from time to time by written notice to the Company (in the form required by the Company, the covenants and substantive provisions of which are hereby made part of this Agreement) which shall: (i) State that the Option is thereby being exercised, the number of Shares with respect to which the Option is being exercised, each person in whose name any certificates for the Shares should be registered and such person's address and social security number; (ii) Be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by anyone other than the Holder, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under all applicable laws and regulations; and (iii) Be accompanied by such representations, warranties or agreements with respect to the investment intent of such person or persons exercising the Option and the compliance with any applicable law or regulation or to confirm any factual matters as the Company or its counsel may reasonably request, in form and substance satisfactory to counsel for the Company. Page 2 3 (b) Payment of the exercise price may be made, in the discretion of the person exercising the Option, in one of the following manners, or in any other manner approved by the Board, in its sole discretion: (i) The written notice to the Company described above may be accompanied by full payment of the exercise price in cash or by check, or in whole or in part with a surrender or withholding of Shares of the Company having a Fair Market Value (as defined below) on the date of exercise equal to that portion of the exercise price for which payment in cash or check is not made. The value of each such Share surrendered or withheld shall be 100% of the Fair Market Value of the Shares on the date the Option is exercised. The latter of the dates on which such notice and payment are received by the Company shall be the date of exercise of the Option; and (ii) Within five days of the giving of the written notice to the Company described above, the funds to pay for the exercise of the Option may be delivered to the Company by a broker acting on behalf of the person exercising the Option either in connection with the sale of the Shares underlying the Option or in connection with the making of a margin loan to such person to enable payment of the exercise price of the Option. The latter of the dates on which the Company receives such notice and payment shall be the date of exercise of the Option. In connection with any such exercise, the Company will provide a copy of the notice of exercise of the Option to the aforesaid broker upon receipt by the Company of such notice and will deliver to such broker, within five business days of the delivery of such notice to the Company, a certificate or certificates (as requested by the broker) representing the number of Shares underlying the Option that have been sold by such broker for the person exercising the Option. (c) For purposes hereof, the "Fair Market Value" of a Share as of a given date shall be (in order of applicability): (i) the closing price of a Share on the principal exchange on which the Shares are then trading, if any, on the day immediately prior to such date, or if Shares were not traded on the day previous to such date, then on the next preceding trading day during which a sale occurred; or (ii) if Shares are not traded on an exchange but are quoted on NASDAQ or a successor quotation system, (A) the last sale price (if Shares are then listed as a National Market Issue under the NASD National Market System), or (B) if Shares are not then so listed, the mean between the closing representative bid and asked prices for Shares on the day previous to such date as reported by NASDAQ or such successor quotation system; or (iii) if Shares are not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for Shares, on the day previous to such date, as determined in good faith by the Board; or (iv) if Shares are not publicly traded, the fair market value established by the Board acting in good faith. (d) Upon exercise of the Option and the satisfaction of all conditions thereto, the Company shall deliver a certificate or certificates for Shares to the specified person or persons at the specified time upon receipt of payment for such Shares as set forth above. No Shares shall be issued on an exercise of an Option until full payment has been made. 4. DEATH AND DISABILITY. Upon the death or permanent and total disability of the Holder, the Option shall automatically become vested and fully exercisable, and the Option must be exercised, if at all, within the one-year period ending on the anniversary of such death or permanent and total disability. In the case of death, the Option shall be exercised by the Holder's estate or the person designated by the Holder by will, or as otherwise designated by the laws of descent and distribution. Notwithstanding the foregoing, in no event shall the Option be exercisable after May 12, 2007. For Page 3 4 purposes hereof, "permanent and total disability" means a permanent and total disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). 5. TRANSFERABILITY. The Option and the Holder's rights therein are not transferable by the Holder, except upon the death of the Holder as provided in Paragraph 4 except that the Holder may transfer the Option during his lifetime to one or more members of his family, to one or more trusts for the benefit of one or more members of his family, or to a partnership or partnerships of members of his family, provided that no consideration is paid for the transfer and that the transfer would not result in the loss of any exemption under Rule 16b-3 of the Exchange Act with respect to any Option. The Option is exercisable (subject to any other applicable restrictions on exercise) only by the Holder (or any guardian or other legal representative duly appointed for the Holder) for the Holder's own account, except in the events of the Holder's death or permanent and total disability as provided in Paragraph 4 or transfer as provided in this Paragraph 5. 6. TAXES. The Holder hereby agrees to pay to the Company any federal, state or local taxes of any kind that may be required by law to be withheld and remitted by the Company with respect to the Option and the exercise thereof. If the Holder does not make such payment to the Company, the Company, to the extent required or permitted by law, shall have the right to withhold from any payment of any kind otherwise due to the Holder from the Company, any federal, state or local taxes of any kind required by law to be withheld with respect to the Option or the Shares which are the subject of the Option. The Company, in its sole discretion, may permit the Holder to pay such taxes through the withholding of Shares otherwise deliverable to such the Holder upon exercise of the Option or the delivery to the Company of Common Shares otherwise acquired by the Holder. The fair market value of Common Shares withheld by the Company or tendered to the Company for the satisfaction of any tax withholding obligations determined to exist under this Paragraph 6 shall be determined on the date such Common Shares are withheld or tendered. 7. INTENT. The Option does not, and is intended not to, qualify as an "Incentive Stock Option" for purposes of Section 422A(b) of the Code. The Option shall be construed and exercised consistent with such intention. 8. SECURITIES LAW COMPLIANCE. Notwithstanding any provision of this Agreement to the contrary, the Option shall not be exercisable unless, at the time the Holder attempts to exercise the Option, in the opinion of counsel for the Company, all applicable securities laws, rules and regulations have been complied with. The Holder agrees that the Company may impose such restrictions on the Shares as are deemed advisable by the Company, including, without limitation, restrictions relating to listing or trading requirements. The Holder further agrees that certificates representing the Shares may bear such legends and statements as the Company shall deem appropriate or advisable to assure, among other things, compliance with applicable securities laws, rules and regulations. 9. RIGHTS OF THE HOLDER. The Holder shall have no dividend, voting or other rights of a shareholder with respect to the Shares which are subject to the Option prior to the purchase of such Shares upon exercise of the Option and the execution and delivery of all other documents and instruments deemed necessary or desirable by the Company. 10. MISCELLANEOUS. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, except to the extent otherwise governed by Federal law. Page 4 5 IN WITNESS WHEREOF, the parties have subscribed their names hereto as of the date first above written. DEVELOPERS DIVERSIFIED REALTY CORPORATION, an Ohio corporation By: /s/ James A. Schoff ---------------------------------------- James A. Schoff, Executive Vice President and Chief Operating Officer /s/ Scott A. Wolstein -------------------------------------------- Scott A. Wolstein Page 5 EX-21.1 6 EXHIBIT 21.1 1 Exhibit 21.1 LIST OF SUBSIDIARIES -------------------- OF -- DEVELOPERS DIVERSIFIED REALTY CORPORATION -----------------------------------------
SUBSIDIARY STATE OF ---------- -------- INCORPORATION ------------- 1. Developers Diversified Finance Corporation Ohio 2. Developers Diversified of Alabama, Inc. Alabama 3. Community Centers One, L.L.C. Delaware 4. Community Centers Two, L.L.C. Delaware 5. Community Centers Three, L.L.C. Delaware 6. Shoppers World Community Center, L.P. Delaware 7. DD Community Centers One, Inc. Ohio 8. DD Community Centers Two, Inc. Ohio 9. DD Community Centers Three, Inc. Ohio 10. Arizona Crossing Limited Liability Company Ohio (fka Arrowhead Crossing Company Ltd.) 11. Eastchase Market Inc. Ohio (dba Eastchase Market I, Inc. in Texas) 12. Eastchase Market L.P. Texas 13. Highland Grove Limited Liability Company Ohio 14. Maple Grove Crossing Limited Liability Company Ohio 15. Tanasbourne Town Center Limited Liability Company Ohio 16. Merriam Town Center Ltd. Ohio 17. Macedonia Commons Ltd. Ohio 18. DOTRS Limited Liability Company Ohio 19. Developers Diversified of Pennsylvania, Inc. Ohio 20. Pedro Community Centers, Inc. Ohio
2
SUBSIDIARY STATE OF ---------- -------- INCORPORATION ------------- 21. DDRA Community Centers Four, L.P. Texas 22. Foothills Towne Center II, Inc. Ohio 23. Foothills Towne Center III, Inc. Ohio 24. DDRC Great Northern Limited Partnership Ohio 25. Developers Diversified Cook's Corner LP Ohio 26. Developers Diversified Broadview Village LP Ohio 27. Developers Diversified Centennial Promenade LP Ohio 28. DDRC PDK Hagerstown LLC Ohio 29. DDRC PDK Salisbury LLC Ohio 30. DD Development Company, Inc. Ohio 31. Developers Diversified of Indiana, Inc. Ohio 32. DDR Nassau Park II Inc. Ohio 33. DDR Nassau Pavilion Inc. Ohio 34. Developers Diversified of Mississippi, Inc. Ohio 35. DDRC Michigan LLC Ohio 36. Coon Rapids Riverdale Village LLC Ohio 37. DDR Nassau Pavilion Associates LP Georgia 38. DDR Continental LP Ohio 40. DDR Continental Inc. Ohio 41. Hendon/DDRC/BP, LLC Delaware
EX-23.1 7 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference (i) in the Prospectuses constituting part of the Registration Statements on Form S-3 (Nos. 333-37067 and 333-05565) and (ii) in the Registration Statements on Form S-8 (Nos. 333-33819, 33-84606 and 33-74562) of Developers Diversified Realty Corporation of our report dated February 12, 1998 appearing on page F-2 of this Form 10-K. PRICE WATERHOUSE LLP Cleveland, Ohio March 31, 1998 EX-27 8 EXHIBIT 27
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 18 0 0 0 0 0 1,325,742 (171,737) 1,154,005 0 668,521 0 149,750 2,769 516,531 1,391,918 0 169,040 0 0 79,330 0 35,558 67,522 0 67,522 0 0 0 67,522 2.06 2.05
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